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Odfjell: Minimal Covid-19 impact

Odfjell posted in our view extremely strong results yesterday despite coronavirus-impacted environment. The company even managed to show a solid growth QoQ, let alone beat our previously significantly reduced estimates. Chemical tanker market was communicated to be fairly resilient to the virus and seeing that our worst scenario will not materialize, we increased our estimates for the 2Q20, while no major changes were made to long-term prognosis. Buy at unchanged NOK 40/sh TP is reiterated.

Very strong figures reported in Covid-19 environment

Odfjell managed to show improved results QoQ despite all disruptions related to Covid-19. The impact was said to be limited to reduced revenues from its regional fleet in Asia, while the deep-sea fleet experienced a weaker market sentiment towards the end of 1Q, which could spill over to 2Q20. Furthermore, differently from their main competitors, Odfjell had no operational disturbances or unexpected costs from IMO-2020 transition. Therefore, strong results were driven by increased shipping rates, which neutralized increased bunker costs of compliant fuel. Despite revenues and EBITDA reaching levels last seen in 2015, the bottom line still came in a negative territory.

High short term uncertainty, but fundamentals remain strong

The chemical tanker market continued to improve in 1Q20 and was negatively impacted only towards the end. Surely the uncertainty for the future market development is very high, even the CEO Kristian Mørch said never to have experienced a more unclear picture. However, the demand is holding up and Odfjell is helped by a strong CPP market and reduced swing tonnage. A slightly weaker result is expected in 2Q20, but nothing as bad as we previously feared, thus our short term estimates were significantly upped. In a longer term, the tonne-mile demand is still expected to continue to grow, although at a reduced rate of 2-4% on average until 2022 depending on the outcome of Covid-19 pandemic, versus a supply growth of 1% on average in the same period.

No worries in other segments

Odfjell Terminals delivered a strong operating performance in 1Q20 generating EBITDA of USD 8m, reflecting stronger utilization. Demand continues to be strong, with average occupancy rate reaching 93% in 1Q. Furthermore, Odfjell closed a 5-year USD 250m revolving credit facility during the quarter to refinance existing debt and fund planned investments. Terminals in China are still considered to be sold, as well as two remaining gas carriers.

Following the much-better-than-expected figures, little fear about 2Q20 and continuously positive mood towards the longer term future of the chemical tanker market, we reiterate our Buy recommendation for the stock at an unchanged NOK 40/sh TP.

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Source: Norne Research

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