Clarksons Platou Securities is tipping Norwegian tanker owner Odfjell to enjoy a big cash flow boost next year as it takes delivery of its final newbuilding.
Chemical tanker companies continue to outperform consensus estimates in a world characterised by a shaken economy, the investment bank's vice president of credit research Hans Lund and analyst Henriette Vevstad said in a note to clients.
The Oslo-listed shipowner reported its best Ebitda since 2008 in the second quarter, while rival Stolt-Nielsen's strong third quarter results last week, driven by lower cost, outdid consensus by 26%.
Odfjell is moving into the final phase of its newbuilding programme, which has weighed on the company's cash flow in recent years, with the sixth and final new tanker scheduled for delivery in November, the analysts said.
Cash coming
Remaining capital commitments related to the vessels amount to $82m and are fully financed through a new debt facility.
"Odfjell could see a meaningful improvement in free cash flow from 2021 and beyond, which could provide the company with the flexibility to pay down debt and effectively reduce its cash breakeven level," the analysts added.
The company operates one of the largest chemical tanker fleets in the world with 70 vessels.
Clarksons Platou calculates that Odfjell could generate free cash flow of between $200m and $244m in 2021 and 2022 respectively.
Total debt, including remaining capex, is $1.3bn. But this is "well covered" by the estimated asset value of $1.8bn, the analysts said — and further supported by a cash position of $148m.
"Odfjell’s strong bank relationship as well as its demonstrated access to capital markets through regular bond issues provides comfort around upcoming debt maturities, in our view," Lund and Vevstad said.
The company has maturities covered up to 2022.
Room to breathe on covenants
The investment bank believes bosses' focus on de-leveraging, combined with the improved cash flow, should provide a larger headroom for covenants.
Clarksons Platou expects a cash total of $269m in 2022, compared to a covenant requirement of $80m.
"Moreover, we expect the debt-to-asset ratio to decline to 57% in 2022 versus the covenant of 75%," the analysts said.
They assess the value of Odfjell's chemical tankers at $1.67bn.
Compatriot investment bank Norne Research said demand for packaging and healthcare products is more than offsetting reduced car and construction-related cargo for chemical tankers.
Norne said Stolt-Nielsen had signalled an uncertain outlook once again, however.
Earlier this month, Odfjell launched a new flexible fuel cell project that gained the attention of the country's prime minister, Erna Solberg.
The politician witnessed how the shipowner and its partners Wartsila, Prototech and Lundin Energy Norway are building a pilot system to use fuels including green ammonia and LNG.
