Stolt-Nielsen posts its 1Q20 results next Thursday. We reduced our estimates for the quarter due to Coronavirus, but slashed 2Q20 estimates much more, as the company adds the figures starting March to 2Q report. Nevertheless, long term estimates had less adjustments as we still anticipate the worsened situation to pass soon and the Chemical Tanker market to recover if not towards the end of 2020, then in 2021. Buy is reiterated at a lower TP of NOK 110/sh (140).
Some disruptions in 2019 were thought to be over until COVID-19 came
2020 was supposed to be the continuation of recovery for the company after some disruptions in 2019 caused by the US-China trade war and the explosion and fire onboard Stolt Groenland in September, but, as for most businesses, the Coronavirus mixed all the plans. We value two waves of the virus as unequal for the shipping segment and the 1Q20 (December-February) Stolt’s figures should feel the impact of the first wave – China’s ports closing. The second wave with China’s ports back on track, but the rest of the world’s being disrupted, should have a much more significant impact for the company’s 2Q20 (March-May) figures. On the other hand, reduction in bunker prices should have a positive impact on Tanker margins. We anticipate EBITDA for 1Q20 to be slightly below the USD 100m mark, while the bottom line is projected to be at around breakeven level with the serious breach in 2Q20, although it is almost impossible to predict the amount of the impact. We also decided not to show consensus expectations as the estimates are still not updated with the Coronavirus’ potential impact.
Long term outlook remains positive
Newbuilding orderbook is still very low for 2021 and 2022, thus a favourable supply/demand balance for Tankers is seen during 2020 and beyond. The company believes in quick recovery of the markets although uncertainty towards the virus development remains. This of course means that IPO of the segment is postponed once again until the conditions stabilize. Stolt-Nielsen’s expectations towards Stolthaven Terminals were for similar revenues YoY in 2020 in the annual report, while we also expect the segment to be less impacted by the virus than Tankers. Tank Containers are talking about the long term geographical expansion, similar to Sea Farm that is planning to open a second farm in Portugal in mid-2020 and expects first production from recirculation farm in Spain in 2021.
Dividends withdrawn; our positive view towards the share retained
The Board of Directors voted to withdraw its previously announced recommendation of a final dividend for 2019 of USD 0.25 /sh. Dividends are delivered two times a year, so the total amount for 2019 remains at USD 0.25/sh.
As mentioned above, we made some significant downward changes to short term estimates, but our long-term positive projections remain and we reiterate Buy recommendation for the stock under the lowered TP of NOK 110/sh (NOK 140/sh previously).
Source: Norne Research