Stolt-Nielsen: Heading into the year of recovery

Stolt-Nielsen posts its 1Q19 report (December-February) this Thursday. Although we are optimistic towards the expectations of development in rates throughout 2019, 1Q figures are not yet anticipated to be exceptional. Seasonal improvement in Tank Containers is projected to lift the top line for the company QoQ, while the other segments are seen stable to slightly improving. The company keeps its cautiously optimistic view in the annual report and also continues a share buy-back program together with reduced 2xUSD 0.25 dividends. Our view towards the stock remains positive with a slightly upped NOK 135/sh Target Price as we continue to see the tanker market fundamentals showing to the upside, while other segments are projected to show stability.

Seasonally stronger quarter expected, still a long way to recovery

After weaker than expected 4Q18 figures, we forecast a seasonal improvement QoQ for the company. Although rates have increased in the chemical tanker market somewhat, we still anticipate only a minor improvement in the top line for the segment, seeing the higher advance only by end-1Q and considering a lag for the revenues to reflect it. However, a solid development QoQ is expected from the Tank Container segment, which usually has very weak end of the year. Overall we await USD 539m in the top line and EBIT of USD 45m – a bit behind the previous usual USD 50m level.

Market fundamentals remain optimistic

The “cautiously optimistic” outlook for 2019 for Chemical Tankers was again repeated in the annual company’s report. On the supply side, the growth of deep-sea chemical tanker fleet, which ran at about 6% annually from 2017 to 2018 was communicated to gradually drop to 2% or less per year for the next few years creating a more balanced market. Chemicals demand growth is expected to grow in line with the global trade and faster than global GDP and surpass the levels of tanker supply growth. Similar supply/demand balance is seen by Stolt’s main competitors, while we also see all signs pointing to the long awaited improvement.

Other segments expected to show stability

Chemical storage markets are projected to remain stable once again in 2019. Stolthaven Terminal results are expected to improve in 2019, reflecting ongoing actions to enhance operational performance and profitability. Tank Containers also keep up with its strategy and sees strong long-term fundamentals, while we also anticipate a marginal continuous growth in the figures. Seeing an outlook of growth for the Sea Farm products and increasing demand for LNG (Avenir and Stolt-Nielsen Gas) we keep our positive view towards the share and reiterate Buy recommendation at NOK 135/sh Target Price. A small rally in the beginning of 2019 has ended, while we still think the upside is much higher.
Source: Norne Research