TORM plc. (NASDAQ: TRMD) is one of the world’s leading carriers of refined oil products. The Company operates a fleet of approximately 80 modern vessels with a strong commitment to safety, environmental responsibility and customer service.
On May 17th, the company announced financial results for the quarter ended March 31, 2018. The TORM remained profitable in the first quarter of 2018 despite a muted freight rate environment, as the One TORM platform continues to deliver strong commercial results. In January, TORM successfully completed a USD 100m equity raise, which allowed it to execute on its fleet investment plan. The strong balance sheet and financial flexibility provided it the capacity to exercise options on three high specification MR newbuildings at historically attractive prices during April’18.
Key highlights of 2018:
The company’ business risk profile continues to be supported by strong global refined product demand underpinned by healthy economic growth; clean petroleum-products stockpiles have returned to normal levels, new export-oriented refineries coming online in the middle east from Q2 2018 and product tanker order book fleet ratio at a low level in historical context.
Analysts tracking the stock believes that company is in an upgrading cycle, supported by its promising business risk profile along with a strong balance sheet. Considering recent developments, analysts see promise in the company and believe it will provide a robust fundamental appeal to the investors as well as momentum players trading the stock. Several brokerage firms have initiated coverage on the company, and the stock currently has an average rating of “Buy” and a consensus price target of $9.50.
About the Company:
TORM plc, a product tanker company, transports refined oil products worldwide. The company transports refined oil products, such as gasoline, jet fuel, naphtha, and diesel oil. As of March 8, 2018, it had a fleet of 80 vessels. The company serves independent oil companies, state-owned oil companies, and oil traders and refiners. TORM plc was founded in 1889 and is based in London, the United Kingdom.
Key Demand driver:
- So far long-term demand factors are concerned, the relocation of refinery capacity from the traditional consuming areas to, for instance, the Middle East is indeed very positive for ton mile. Refinery additions in the Middle East have contributed significantly to the product tanker market over the past six years. Moreover, the good news here is that the company have even more refinery additions in the pipeline for the coming six years.
- On the product tanker demand front, the fundamental demand factors driving the product tanker market in the long-term perspective remain intact, and the company is forecasting ton-mile demand to grow by around 5% annually, up until and including 2020. This bodes well for the future.
First Quarter 2018 Results:
Earnings and Yields: TORM realized an EBITDA of USD 37m (2017, same period: USD 44m). The profit before tax amounted to USD 1.1m (2017, same period: USD 4.8m). Cash flow from operating activities was positive with USD 18m in the first quarter of 2018 (2017, same period: USD 27m) and earnings per share (EPS) was 1 US cent (2017, same period: 10 US cents). Return on Invested Capital (RoIC) was 2.4% (2017, same period: 3.9%).
Liquidity and financial flexibility:
- TORM completed an equity raise of USD 100m in order to pursue accretive growth opportunities while maintaining the strength of the balance sheet.
- Subsequent to the balance sheet date, TORM exercised options for the construction of three high specification MR newbuildings for a total commitment of USD 93m and with expected delivery in 2019 through the first quarter of 2020 and secured commitment for attractive vessel financing of up to USD 63m, subject to loan documentation.
- TORM took delivery of two LR2 newbuildings in the first quarter of 2018 and a third LR2 newbuilding after the balance sheet date.
- As of 31 March 2018, available liquidity was USD 465m and consisted of USD 174m in cash and USD 292m in undrawn credit facilities. As of 31 March 2018, net interest-bearing debt amounted to USD 577m. As of 31 March 2018, TORM’s net loan-to-value ratio was 51%.
- Based on broker valuations as of 31 March 2018, TORM’s Net Asset Value (NAV) excluding charter commitments is estimated at USD 857m. This corresponds to a NAV/share of USD 11.6 or DKK 69.7.
- TORM’s book equity amounted to USD 892m as of 31 March 2018. This corresponds to a book equity/share of USD 12.0 or DKK 72.1.
- The book value of the fleet was USD 1,433 m as of 31 March 2018 excluding outstanding installments on the newbuildings of USD 242m.
Key risk factors:
- Oil price at the highest level since Q4, 2014, limiting demand growth for gasoline,
- Negative spill overs effects from crude newbuildings cannibalizing traditional LR trades in the East
- LR net migration to the dirty market has reversed
- The company’ ability to maintain and its liquidity and continue quarterly distribution on its common units.
- The company’ operations are significantly exposed and dependent on the economic activities. A decrease in the level of China’s imports of raw materials or a decrease in trade globally could have a material adverse impact on its charterers’ business and, in turn, could cause an adverse impact on its results of operations, financial condition and cash flows.
- The company’s operational and market risk profile is also exposed to competitive pressure. Therefore, its ability to expand relationships with existing customers and obtain new customers would continue to remain a key business sensitivity factor.
- On Friday, June 8th, 2018, TRMD closed at $7.99 (Up by 1.6%), on an average volume of 1587 shares exchanging hands. Market capitalization is $602.095 million.
- In the past 52 weeks, shares of TRMD have traded as low as $7.09 and as high as $8.25.
- At $7.99, shares of TRMD are trading above its 50-day moving average (MA) at $7.68
- The present support and resistance levels for the stock are at $7.95 & $8.03 respectively.
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