New York-listed product tanker owner Scorpio Tankers beat Wall Street expectations with a robust fourth quarter and has opened 2024 with even better numbers, but it is not yet distributing the outsized shareholder returns it tipped in late-2023.
The Emanuele Lauro-led outfit has once again hiked its regular quarterly dividend to $0.40 per share from $0.35, but there was no sign of a fatter special dividend that may still be in the works in the first half of 2024.
And Scorpio slowed its stock repurchases as the share price climbed in recent months.
Still, its adjusted fourth-quarter earnings of $2.75 per share topped consensus analyst estimates of $2.60, while adjusted Ebitda of $237m beat consensus of $229m.
And Scorpio has opened 2024 with even stronger bookings across its vessel classes.
LR2s are at $57,000 per day and Scorpio has fixed 68% of spot days booked, up from $38.431 in the last quarter.
MRs have been fixed at $34,500 per day with 59% booked, topping the average $32,080 last quarter.
Jefferies analyst Omar Nokta pointed out that with current spot averages in the broader market more like $70,000 per day for LR2s and above $40,000 for MRs, Scorpio is likely to improve the bookings to date.
“We are modelling final figures of $58,000/day for the LR2s and $35,000/day for the MRs, and we maintain our 1Q EPS estimate of $3.73 (consensus is at just $3.14),” Nokta told clients.
“The product tanker market had been tight coming into 2024 but Red Sea tanker diversions are continuing to accelerate, leading to further tightness and higher overall spot rates.”
Scorpio has continued to aggressively reduce its net debt through buyouts of ships previously on more-expensive lease financing.
It ended 2023 with net debt of $1.23bn and has since reduced this to $1.09bn, with Jefferies projecting the figure will fall to $990m by the end of this quarter and $765m by mid-year.
This puts debt in line with fleet scrap value of between $800m and $900m, meeting the levels Scorpio president Robert Bugbee has said are necessary for more-aggressive returns of capital.
“Given Scorpio’s standing as the largest LR2 and MR shipowner globally, and its young fleet age, management is unlikely to utilise cash for fleet renewal. Thus rewarding shareholders is likely a key priority,” Nokta wrote.
Cautious on call
Scorpio executives restated their general commitment to that strategy on Wednesday’s investor call.
However, they were not willing to tip details, even as they voiced general caution over the outlook for a market that is being roiled by some many pieces of disruption at once, particularly in the Red Sea.
“We are running the company as if the Red Sea were to open up tomorrow,” Bugbee said in response to a question from Evercore ISI analyst Jonathan Chappell, alluding to the recent Houthi rebel attacks on shipping in the region.
“On that basis, we still think the market will be really strong. In our base case, we’d expect MRs to be around $35,000 a day and LRs around $60,000.”
Nokta mentioned that those conservative estimates were even higher than the guidance given on bookings so far and asked for an explanation.
“The first three or four weeks of the quarter, there was no impact at all, and every day we answered questions from investors on why there was no Red Sea impact on rates,” Bugbee told him.
“Our answer was that it takes a little time. It took a little time. So if the Red Sea opened tomorrow, again, it would take a little time. That factors into what we’d expect to earn in the trailing four weeks if the Red Sea were to open tomorrow.”
Even those base-case earnings would put Scorpio on a strong path to reaching its debt-ratio targets, but management was circumspect about projecting the precise timetable, and unwilling to detail its approach to returning capital, including a prospective special dividend.
“We’re moving very fast towards a deleveraged state. We’re certainly not distracting ourselves. We want to keep our eye on the goal, and our mission is taking the debt down,” Bugbee said.
“We will finish our mission to deleverage the balance sheet and operate from tremendous strength from that point.”
By the numbers
For the fourth quarter, Scorpio has adjusted net income of $142.2m, or $2.85 per basic share, on vessel revenue of $336.3m. This was down from adjusted net income of $256m, or $4.59 per basic share, on vessel revenue of $493.7m in the final three months of 2022.
For full-year 2023, Scorpio reported adjusted net income of $570.3m or $10.87 per basic share, on vessel revenue of $1.3bn. This was lower than the $702m, or $12.66 per basic shares, on vessel revenue of $1.6bn recorded in 2022.
The fleet-wide time charter equivalent average for 2023 was $39,949 per day for 2023, down from $45,679 in the previous year.
Despite the strong earnings and guidance, Scorpio shares were trading off about 1% on Wednesday morning on the New York Stock Exchange to $66.78.
