Stolt-Nielsen posted its 1Q (December-February) report with again better than we predicted margins. In addition to solid figures, the company continued to renew its contracts at more than favorable rates, mentioning a formidable 50% rate increase. We have included the multiples valuation method in addition to the DCF model in our report and with the continuously strong outlook reiterate Buy recommendation for Stolt-Nielsen’s stock at yet another milestone of NOK /sh Target Price.
Revenues as expected, but profitability again higher than predicted
This has been the fourth strong quarter in a row for Stolt-Nielsen where the results have outperformed our expectations. While the 1Q is usually the seasonally weakest quarter, Stolt Tankers improved on the prior quarter’s results as the impact of contract renewals began to reflect on earnings. Terminal results improved due to high utilization, even with the volumes down slightly. With the previous skeptical guidance towards Tank Containers for 2023, this segment has been seen holding up remarkably well so far, while the Christmas season for Sea Farm is the peak period.
Contract renewed at favorable rates
In the 1Q, Stolt Tankers had achieved an average rate increase on contract renewals of ~50%, an outstanding figure and even a significant improvement over the fourth quarter’s 30% rate increase, which was impressive as well. Taking the opportunity to do so strengthens our view – Carpe Diem in Latin. While some contracts were not renewed, the company has managed to gather similar contract volumes in the spot market, where even higher rates were achieved.
Segments holding up well, 2023 is expected to be firm
A supportive /demand balance is expected in the chemical tanker market in the following years, which should bolster expectations. Higher storage rates were seen for the Stolthaven Terminals due to tightness in the global storage market, further, an increase in inquiries indicates solid demand for the rest of 2023. However, the very firm tank container market is expected to move towards normalized market conditions, but this was known previously and we have taken into account already, maybe even too soon, seeing that the 1Q was far from the drop.
New valuation method added, all point to Buy
We included an SOTP valuation based on EV/EBITDA in our report divided into multiple segments – this might come up handy if Tankers or Sea Farm is to be split up. We used EV/EBITDA multiples of 5, 8 and 10 for Tankers, Terminals + Tank Containers and Sea Farm + Other respectively and included the company’s owned share portfolio. Following the two valuation methods with an additional discount, we stick to Buy recommendation for the stock under a higher NOK /sh Target Price.
Source: Norne Research
