Odfjell: Let the good times roll

Odfjell posted very solid 1Q22 figures last week knowing that the first quarter is usually much weaker due to seasonality. Despite bunker costs reaching record levels, chemical tanker rates were improving following the positive supply/demand balance, while the guidance is strong for both the long-term and the 2Q22. The share has reacted very positively lately, but we suggested that there still is an upside for the stock, while now the estimates will be somewhat upped and the recommendation depends on the post-report market reaction.

Very solid numbers for the seasonally weaker quarter

The chemical tanker market continued to strengthen throughout the quarter, and this let Odfjell to report very solid results yesterday evening. EBITDA of USD 67m was somewhat higher than we and consensus expected, while the bottom line of USD 11m (USD 9m adjusted for the one-offs) surprised. The supply/demand balance was perfect with the negative fleet growth and at the same time growing demand. Russia’s invasion of Ukraine led to increased miles as European importers began sourcing substitute cargoes from further afield, while Odfjell’s last operations in Russia and Ukraine were a couple of years ago. Swing tonnage pressure reduced as well. COA nominations were communicated to have been replaced by better paying spot cargoes during the quarter, although noting that the contract renewals were concluded at increased rates.

Promising ST and LT guidance

The chemical tanker market was said to have improved considerably in the second half of the quarter and Odfjell’s results are guided to be reported stronger in 2Q22 QoQ. Strong fundamentals support the longer-term prospects as well, although geopolitical tensions, inflation and the lockdown in China are mentioned as the main risks.

Becoming the dividend case

After the NOK 1/sh dividends for 2021 and the approved policy of 50% adjusted net profits as further pay-outs, Odfjell might be seen as a dividend case. We will update our estimates, but 6-7% dividend yield now seems realistic even for this year.

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Source: Norne Research