TORM PLC TRMD
April 23, 2020 - 9:02am EST by
bowd57
2020 2021
Price: 8.67 EPS 0 0
Shares Out. (in M): 75 P/E 0 0
Market Cap (in $M): 650 P/FCF 0 0
Net Debt (in $M): 756 EBIT 0 0
TEV ($): 1,406 TEV/EBIT 0 0

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Description

Hi, guys --

TORM is a pure-play product tanker company. Product means they ship the goods that come out of the refinery, rather than the crude oil that gets delivered to the refinery. They trade at a meaningful discount to net asset value, as do their closest peers of any scale, STNG and DSSI. Product tankers have, ah, been in the news lately. Rates have gone through the roof. I'll leave the bull case to my esteemed colleague, HKup881 and will here only briefly allude to the appeal of investing in clean tankers. Instead, I'll lay out a couple of reasons why those who are interested in the space might want to diversify into, or maybe even start with, TRMD, and why this is particularly timely for those who are restricted to investing in US listed companies.

The #1 appeal of TORM is sponsorship. TORM is an Oaktree vehicle, as in Howard Marks. Oaktree has been adding lately, on 4/7/2020 it was announced that they'd bought another 1.2% of the company. STNG is represented by Robert Bugbee, who is umm colorful and promotional and publicly trades options in his own stock. DSSI has a significant overhang from the 8.8% stake owned by First Reserve, which is thought to looking to exit at the first opportunity, and the 22% stake owned by Wilbur Ross, who is thought to be looking to sell down as opportunity allows.

The #2 appeal is that, due to recent Efficient Market Hypothesis violations, it might actually be possible for US investors to buy this thing. It's been tough to purchase in the US because Oaktree owns 66% and it mostly trades in Denmark. It spiked up 450% the other day, I think because the CEO was quoted in the news. The main listing for this is in Copenhagen, where it was trading at 55 DKK (USD/DKK = 0.15) so I think some idiots in the US thought that was the USD price and bid it up to $48. I was lucky enough to sell a couple of months canny accumulation into the spike and then replenish my stock a couple of days after. The unwinding of that rise might provide enough trading volume to actually make the stock purchasable in the US.

So the main point is that you can either invest along with Howard Marks (although in a distinctly minority position) or Bugbee who is a real character, or Wilbur Ross. I know who I'm sidling up next to.

Here's the part where I briefly allude to the merits of investing in product tankers: Current rates are model-breaking, well above what even the craziest bull could imagine. They've risen so high the ability of tanker owners to collect the money has become a concern. If this persists for any period of time -- and it might -- clean tankers are going to skyrocket. If rates fizzle out, well, at least you've got steel in the water.

Some basics on TORM:

Fleet: 12 LR2, 9 LR1, 55 MR, 2 Handysize

NAV: Company estimated NAV was $13.6 at year end, + analyst estimates of $0.6 EPS for Q1 = 14.2, for a 39% discount to NAV, vs. call it 20% for STNG.

Operations: They claim to outperform the industry, just like every other shipper.

Debt & Liquidity: Fine here, with 46% LTV, $72MM cash, $300MM liquidity.

Capital Allocation: The policy is to return 25%-50% of earnings through buybacks & semi-annual dividends. Obviously that will change if the cash really starts to gush.

TCE Sensitivity: The company estimate that FCF moves by $25MM for a $1K change in TCE.

ESG: Ha ha, just kidding, although they do give you all the details in their very long Euro-style annual, which can be found here: https://investors.torm.com/static-files/7d9d4a4b-b8d0-4913-96da-a7aaa2f4af29 . They also have a very thorough "risks" section to prove they're not cowboys.

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I'm taking a basket approach to the sector and am glad to get the chance to add another company to the basket. If I had to pick only one, though, it would probably be TORM, due to the steep NAV discount and control by a financially rational sponsor, which I think outweighs the poor trading liquidity and risks of the minority positions.

Yours,

Bowd

 

 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Sky-high tanker rates.

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