In early-to-mid Jan 2024, something caused me to be fidgety about my INSW stake, so I sold a portion of INSW in both my Roth ac and my taxable ac. So, there’s good news and bad news there.
Bad news - I don’t know what caused the angst
Good news - It couldn’t have been major, else a larger stake (or entire stake) would have been sold.
Yes, I have repurchased some INSW shares this week. This is just a review of INSW to understand why I own my stake. I had considered posting on “Value Hounds”, but my back-of-envelope NAV calculation ended up less than market cap (not by a lot, but still less). And yet, INSW is still a reasonable idea in the port. Okay, so HohumYNWA, make the case.
- Due to low orderbook of conventional tankers (dirty and clean), the value of existing vessels has bumped up. INSW claims the fleet as valued at $3B (I’m a little more conservative and say $2.75B). On their books, the vessels are valued at about $2B
- Manageable debt. INSW aggressively paid down debt in 2023 - over $280M in extra payments to reduce their debt to ~ $800M. It likely moves up again in Q1 and Q2, but vessels line item also moves up.
- View to the future.
a. INSW has three dual fuel (DF) VLCCs which delivered in 2023. The new VLCCs were fixed on 7-year charters with above average rate and profit share potential.
b, INSW ordered 2 LR1 tankers with an option for 2 more in Aug 2023. Shortly after, the company exercised the option. So four new LR1s - two in 2025, two in 2026.
c. *INSW disposed 3 older MR2 tankers in 2023. The company announced an acquisition deal in 2024 to acquire 6 2014-2015 built MR2 tankers for $232M (Tighter tanker market, so higher than average price. But newer vessels)
- is a Q4 2023 earnings report item, so it has no bearing on the early-mid Jan 2024 decision.
- INSW has a sensible dividend policy. The quarterly dividend is fixed. It started as a quarterly 3c/sh, that has now been bumped up to 12c/sh. The last six quarters, INSW has paid a special div of at least $1/sh
- The time-charter approach is reasonable - abt 16% of fleet on TCs (Aframax great rate, VLCC dependent on profit-share component)
Risks
- Shipping is misunderstood, so names start bouncing erratically (I am quite aware of this with my LNG shipping ideas FLNG and CLCO pulling back significantly).
- INSW has a lot of older vessels, specifically on the clean tanker side.
a. Will those older MR2 start suffering from a loss of earnings potential?
b. Q1 2024 looks bad for the MR2 category with over 200 days of offhire - Not sure the impact of ETS standard
https://www.intlseas.com/files/doc_financials/2023/q4/INSW-Q4-2023-Earnings-Presentation-Final.pdf
To conclude:
- Higher revenue means higher margins. If INSW manage $1B in rev, margins likely in the 35-40% range
- Expect sales of MR2 vessels in 2024. If sales price is sticky, net proceeds can cover some of the newbuild installments (I suspect many of the MR2 vessels are unencumbered)
- If quarterly payout stays above $1, great. My own modeling lowers it to 75c (in particular, for traditionally weak Q3)