Odfjell posted very strong results last week, significantly beating our and consensus’ predictions. This was even more impressive in a seasonally slower quarter. 2Q is guided to show a further increase in earnings. Combining the guidance and the CMD yesterday, we increased our estimates somewhat, together with the Target Price of NOK 210/sh. However, the share continues to rally and we still see a limited upside and the risks related to the end of worldwide conflicts and the weather normalization.
Thriving on issues in the Red Sea and Panama
1Q24 was a record quarter for Odfjell driven by strong markets. Terminals were spot on our expectations however, Tankers showed an impressive performance not only on the revenue side, but also a solid cost control. Already tight chemical tanker market firmed further on the prolonged voyages due to the problems in the Red Sea and this resulted in improved rates during the quarter. Both EBITDA and EBIT beat our and consensus’ prediction by more than 10%.
Records might be beat very soon
Odfjell renewed contracts covering 22% annual volumes with an improvement in rates of around 14%. This just adds to a promising short-term outlook – the dangerous and unpredictable situation in the Red Sea does not seem to end anytime soon, the full normalization in Panama this year seems unlikely, although the transition to La Niña is expected later this year. The product tanker market also continues to show strength with the swing capacity not returning to chemical market’s side. The company expects Odfjell Terminals to be in line next quarter, while Tanker earnings were guided to further increase, which should lead to again record-high figures if reached.
Responsible for one fifth of the orderbook
Chemical tanker orderbook is communicated to remain at low levels, although with a YoY increase this year. However, Odfjell seems to be responsible for a large number of vessel orders. During 1Q24, Odfjell signed an agreement for one vessel to be built at Dingheng shipyard and delivered in 2027. This vessel is planned to be owned and operated by Odfjell’s subsidiary Flumar in the South America trade. In April, the company concluded an additional four newbuildings to be chartered in on long-term time charters from Japanese owners with scheduled delivery in 2026 and 2027. This leaves Odfjell with a total of 16 vessels on order, including owned and time chartered. Estimated capital expenditure for the two declared purchase options and one newbuilding is approximately USD 118m.
Fundamentals are promising, for now
We adjusted our estimates positively, especially for the short-term, but in the longer-term, when a fore mentioned problems are over, we still believe the cycle should turn to a lower side. La Niña should increase the precipitation levels and higher number of transits through the Panama canal, Israel might be forced to turn to negotiations following less help and weapons from the US, while the share of swing tonnage is at the very lows and has a better chance to improve rather than to drop further, which would be also negative for the chemical tankers. All combined, there are some serious risks towards otherwise impressive development and although we think that Odfjell is a tremendous company and showed an outstanding performance, the upside for the record-high share price seems limited, thus, with an increased Target Price of NOK 210/sh, we stick to Hold.
Source: Hellenic Shipping News
