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Odfjell: Seasonally weaker quarter should not disappoint this year

Although Odfjell guided a seasonally lower first quarter to follow the superb 4Q21 results, we still anticipate the figures to beat the usual first quarter numbers. We agree that it is difficult to predict the outcome of the Ukrainian-Russian war for the chemical shipping market, but seeing the outperforming competitors, promising outlook and having dividends back on the table, we increase the Target Price for the stock to NOK 55/sh and reiterate Buy. We are also keen to see if any rumours about a potential merger with Stolt-Nielsen would be mentioned in the report.

Weaker quarter QoQ guided

Odfjell guided seasonally weaker first quarter numbers and we agree that it is hardly possible not to report smaller figures than we saw in 4Q21. Nevertheless, we anticipate the company to reach a breakeven bottom line, the achievement seen only once in the last decade’s first quarters. Solid performance from the competitors strengthens our view towards the results.

Uncertainty towards the Russia-Ukraine conflict

In its annual report Odfjell communicates to be optimistic about 2022 and the next few years with the trends pointing in the right direction for the markets and for the chemical tanker segment. However, the outbreak of the war immediately created a global uncertainty leading to the rerouting of Russian cargoes. Russian exports largely supply Europe with methanol, caustic soda, benzene and styrene, and based on initial developments, these are very likely to be sourced elsewhere. As Russian exports are mainly short-haul, replacement volumes will add additional miles and therefore drive tonnage demand higher. In time, it is also likely that Russian cargoes will be shipped to other regions, again leading to incremental tonnage demand. Odfjell stated that the company will not ship Russian cargoes.

Dividends are back!

With the annual report approval Odfjell announced of the dividends of NOK 1.00/sh for 2021 (despite negative net profit in 2021). Last time dividends were paid for 2017. Also, Odfjell will pay out 50% of net income adjusted for extraordinary items semi-annually starting for 1H22. This might gradually lead to a solid dividend yields of 7-8% according to our estimates. All in all, the latter were raised as well as the Target Price for the stock and we stick to our Buy recommendation suggesting that the significant upside remains in our view.

Full Report

Source: Norne Research

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