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Odfjell: Rather solid progress in challenging market

Odfjell posted its 4Q17 report Thursday morning with revenues and adj. EBITDA above our estimates. Both the Tankers and the Terminals showed continuous progress. The challenging chemical tanker market is expected to continue into 2019, this year being a turning point due to improving fundamentals. To reflect the gain on sale of Singapore Terminal Odfjell decided to propose an extraordinary dividend of NOK 1.5/sh (5% div. yield). We made only limited changes to our estimates following the report and reiterate Buy recommendation with NOK 40/sh Target Price as we see the company handling the difficult period rather well.

Adjusted figures beat our estimates

Odfjell posted 4Q17 report last week that showed improving revenues in both the Tanker and the Terminal segments. The positive development in Tankers (USD 213m revenues vs. USD 208m in 3Q and USD 210m our expectations) was due to stronger contributions from regional fleets, although the Hurricane Harvey still negatively impacted the rates on vessels loading in the US Gulf region. An improvement in Terminals could be explained by the higher activity in Houston Terminal. The quarter included many various non-recurring items and adjusted for the sale of Singapore Terminal, Charleston Terminal impairment and deferred tax liability related to US terminals, EBITDA and EBIT improved QoQ and beat our estimates (USD 31m and USD 7m vs. our estimated USD 27m and USD 3m respectively; equity method).

Agreement with Sinochem should bring Odfjell close to Stolt-Nielsen in terms of fleet size and age

Odfjell showed the potential effect of the deal with Sinochem Shipping in November, whereby Odfjell would take 4 chemical tankers on long-term bareboat charters, which will form a pool of 8 vessels together with 4 still owned by Sinochem, but all operated by Odfjell. These vessels are expected to replace some of the maturing fleet and bring the company close to its main competitors Stolt-Nielsen in terms of large super segregator fleet size and the average age, what should contribute positively to future results.

Market guided to remain challenging in 2018; future much brighter

The chemical tanker market is expected to remain challenging before gradually picking up towards end-2018, although significant improvement is not anticipated until 2019. We find this to be somewhat more positive outlook than it was communicated by the main competitors. 1Q18 timecharter results are also expected to marginally improve QoQ. However, market development in the longer term brings even more optimism, as the growing chemicals demand should surpass the slower growth of chemical tankers. Key drivers expected to support demand is large expansions of export oriented chemical plants in the US and Middle East for various liquid chemicals starting from 2018 and peaking in 2019. It is estimated that the average annual growth of chemicals demand should be around 4% during the next three years, while the vessel supply should grow around 2% annually in the same period.

Extraordinary dividend of NOK 1.5/sh proposed, our stance unchanged

The Board decided to propose an extraordinary dividend of NOK 1.5/sh for 2017 (5% yield) to reflect the gain on sale of Singapore terminal (USD 117m was transferred to Odfjell SE). We have not made any major changes to our model following the report and expect the cyclical upturn in end-18 and 2019 for the chemical tankers. 63-65% of clients under CoA was also communicated to be the place Odfjell would like to remain in (60-70% range is the “sweet spot”), thus we anticipate any change in rates to materialize in P&L figures with some lag. Our positive stance is reiterated with NOK 40/sh TP for the stock.
Source: Norne Research

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