Clarksons Securities has said tanker companies will “benefit significantly” as it fine-tunes its net asset value (NAV) calculations.
The investment banking arm of the UK shipbroker is updating its methodology to monitor changes in company worth more quickly and accurately.
NAV is calculated by using the most recent reported balance sheet of a company and adjusting the book value of ships based on current broker estimates.
“Historically, the value of each ship was determined by the year it was built, regardless of its delivery date within that year,” analysts Frode Morkedal and Even Kolsgaard said.
But for the last two years, Clarksons has been valuing ships based on the month of build, preventing a vessel handed over in January 2018 from having the same value as one delivered in December of that year, for example.
As a result, NAV estimates change gradually throughout the year.
“Due to rapid cash accumulation in certain market segments, we have further revised our NAV calculations to include operational cash flow generated since the last balance sheet date. The impact of this change varies across sectors,” the analysts added.
Dry bulk companies, which have had relatively low earnings this year, have seen limited effects.
But tanker companies with higher profits have been boosted, especially since the first quarter has ended and earnings have yet to be reported.
Torm value jumps
Danish product tanker owner Torm, for example, is expected to generate $222m in operational cash flow, or $2.70 per share, in the first quarter, increasing its NAV by about 10%.
Although these cash flows are estimates, companies typically provide earnings guidance for 60% to 70% of the upcoming quarter in quarterly results announcements, ensuring that projections are reasonably accurate, Clarksons Securities argued.
“Moving forward, our NAV estimates will include cash flow based on the percentage of the quarter completed and will thus change gradually throughout the quarter,” the analysts said.
The age of vessels will continue to be gradually adjusted to avoid “double-counting”, as ship values are based on discounted cash flows, they explained.
In addition to this, the investment bank now takes into account the current value of time charters, which offsets some of the NAV increase.
This factor is critical for container ship tonnage providers because contracts have a significant impact on vessel values.
“However, the net effect is expected to be nearly neutral, as the operational cash flow compensates for the reduced time charter adjustment,” Morkedal and Kolsgaard added.
