Stolt-Nielsen: Higher upside post the stock drop

Stolt-Nielsen posted its 2Q (March-May) report last week with the main metrics in line with our expectations. Solid results were led by the main Chemical Tanker division, which is expected to deliver strong results going forward as well. The outlook communicated by the company seems to be decent with no surprises on both ends for all the segments. We made limited changes to our estimates, however, the share declined significantly post the report and this led to a higher upside even with a lowered NOK 500/sh Target Price. Thus, we decided to upgrade our recommendation to Buy implying that the stock drop was excessive.

Results in line with our expectations

We saw another strong quarterly figures from Stolt-Nielsen last Thursday. Higher spot freight rates due to ongoing transit restrictions in the Red Sea resulted in record-high average TCE earnings of USD 32,862/d. Terminals remained stable and solid, while Tank Container shipment volume continued to increase to a record almost 42 thousand shipments, although, with declining margins. Sea Farm’s USD 8.2m in EBIT was driven by firming prices for both turbot and sole. Overall, USD 134.7m EBIT was very much in line with our expected USD 133.5m, while the bottom line even beat our projections.

Signing of new USD 450m USPP notes

Subsequent to the end of the quarter, Stolt-Nielsen executed a new USD 450m notes issue in the US Private Placement markets. The facility is rated BBB and secured by assets in the US as well as a guarantee from Stolt-Nielsen Limited. The facility is in two tranches, seven and ten years, and both tranches have a fixed interest rate of just below 6%. Proceeds will be used to repay the USD 236m USPP maturing in 2Q25, the current revolver amount outstanding (USD 100m) and capital expenditures.

Outlook: TCE earnings +2-4% in 2Q

The transit restriction in the Red Sea is still ongoing and this will add up to higher Chemical Tanker rates at least for 3Q24. Stolt-Nielsen guided the average TCE earnings to increase by 2-4%. The Terminals will have a one-time short need of freeing up the tanks to accommodate new business, which will impact the results negatively in the short term, but, hopefully, will improve the Terminal performance in the long run. Stolt Tank Containers continue to see firming demand out of the Americas and Southeast Asia, with China exports also picking up, while the focus now stands on trying to push up the margins. High energy and feed costs are expected to continue to impact production costs for Stolt Sea Farm, but the prices should remain steady and the sales should continue to grow. Overall, the outlook points for more of a stable situation rather than the growth period and we have made limited changes to our estimates. However, the share dropped so much after the report, that even at a tad lower NOK 500/sh Target Price the upside emerged and we decided to upgrade the recommendation to Buy.
Source: Norne Research