Herbjorn Hansson’s suezmax specialist Nordic American Tankers beat consensus earnings expectations by a penny in the second quarter and saw the stock rise about 1% on Thursday on the New York Stock Exchange.
That was the good news.
However, two of the three US-based equity analysts who write on the stock took down their price targets and, overall, sounded less than excited about the company’s prospects even in a strong tanker market.
The most critical was Evercore ISI analyst Jonathan Chappell, who has long expressed doubts about the company.
He reduced his price target to $4 from $4.50 and maintained a “hold” rating in a client note titled, “You Get What You Pay For .... In This Case Not Much.”
NAT’s calling card once was its ability to consistently trade above net asset value on the strength of unshakeable shareholder dividends relished by its retail investor base.
The dynamic changed as market conditions sent NAT’s cumulative dividends as low as $0.07 for all of 2018 and $0.06 for 2021.
NAT’s most recent payout of $0.12 is the fourth consecutive quarter in which its dividend has exceeded earnings, Chappell noted, and even a current yield of 13.2% is not enough to support the stock price.
“Despite the attractive yield, the shares continue to trade well below NAV (31% discount to our pro forma NAV estimate), mainly because there is little exciting about the earnings outlook or the equity potential,” Chappell told clients.
“The tanker industry is in the midst of a prolonged market upturn, and with peers’ fleets generating much higher rates resulting in much more robust earnings results, if NAT is not shining in this environment, what are investors to play for?”
Unlike most New York-listed companies, NAT does not conduct a regular quarterly earnings call. Instead, it features commentary from founder Hansson in its reports.
“The direction of NAT is unquestionably upward, with further room to grow,” Hansson said on Thursday.
But Jefferies lead shipping analyst Omar Nokta also lowered his price target on NAT, to $4 from $5.
Nokta kept a “buy” rating on the stock, and noted that Ebitda of $43.1m in the quarter beat consensus bets of $39.6m.
While spot rates for the quarter averaged about $40,000 per day, this was below peer rates of $45,000 to $50,000.
A couple more sobering notes: NAT shares had at Nokta’s writing lost about 14% on the year compared with peer gains of 14%; and its $78.6m credit facility with Beal Bank is scheduled to mature in February.
While Nokta estimates that NAT’s fleet value is ample to guarantee extension or refinancing of the loan, its “average age above 16 years complicates its ability to secure a traditional bank loan”.
An overall loan-to-value ratio of 20% does provide comfort, Jefferies said.
The most positive view of NAT came from B Riley Securities analyst Liam Burke, who let stand a “buy” rating and a $6 price target.
“We believe NAT’s concentrated fleet remains well positioned for a global recovery in global crude oil consumption with the potential for upside operating leverage,” he told clients.
