The Motley Fool Discussion Boards
Investment Analysis Clubs / Value Hounds
|Subject: VLCCF in 2012||Date: 3/13/2012 2:14 AM|
|Author: Hohum777||Number: 9503 of 18009|
So I'm going to start the 2012 tanker ideas with one of the smaller publicly traded tanker companies- Knightsbridge Tankers (VLCCF). The company owns 8 vessels- 4 Very Large Crude Carriers (VLCCs) that transport crude oil and 4 Cape-size vessels that ship dry bulk products.
A year ago, VLCCF was in pretty decent shape- manageable debt, a decent amount of cash, and all vessels in some form of fixed charter. The first two are still true, the third will become a concern in 2012. One VLCC time-charter expired in 2011, and the vessel started trading in the spot market. In Q2 2012, a time-charter expires for another VLCC, and in Q3, a bareboat charter expires for a third VLCC. In the Q4 earnings report, there was a two sentence comment--
“Other current assets” have increased partly due to outstanding charter hires. The Company is in constructive discussions with the relevant counterparts in order to resolve this issue.
While this could involve either a VLCC or a Cape charter, I have a strong suspicion it is one of the Capes. If it is the vessel I'm thinking, the safe revenue stream that VLCCF had in 2011 becomes a whole lot riskier in 2012, dropping to 50% time charter coverage by September 2012. I should add, regardless of vessel type, I think the time charter market in 2012 will be difficult for both the VLCC and the Cape vessel categories.
I've mentioned this point in other Knightsbridge related threads. The company has no active management. A few folks at Frontline (FRO) provide all the management services for the company, including working with another John Freriksen-related entity, Golden Ocean, to manage the Cape vessels. It is interesting to note that, while FRO utilizes a majority of its vessels in the riskier spot market, the FRO personnel are much more conservative in managing the VLCCF vessels. A couple of examples of this different approach. About 2 years ago, FRO personnel arranged a 30-month bareboat charters for one VLCC. Then about 18 months ago, the staff arranged a 5-year charter for another VLCC. With the high costs of bunker fuel, this is now proving to be an astute move wrt to VLCC operating costs, older VLCCs in particular (both VLCCs on bareboat charters are over 16-years old).
So where does VLCCF go from here?
As mentioned earlier, the company has a manageable debt load- about $154M. That works out to about $26M per Cape & $12.5M per VLCC- just one pairing among many combinations. The company has access to $75M of credit facilities, plus another $45M in cash. There's also $15M in restricted cash, not tied to a new asset. So, there are four VLCCs, each on the older side (16/17 years old), while the four Capes are newer (each less than 3 years old). Among the options
1. An upgrade of the VLCC fleet,
2. Acquiring more dry bulk vessels
3. Branching into product tankers.
Is that 50c quarterly dividend safe? About five weeks ago, in another VLCCF-related thread, I suggested that VLCCF's dividend was only safe 2-3 quarters. Well, Q4 has been paid. So, if my premise holds, there are maybe 1-2 safe quarters left.
|Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|