Tsakos Stock: New Opportunities As Demand Surges (NYSE:TNP)


LNG tank at night port.  Gas station at the GAS terminal

Author / iStock via Getty Images

The oil and gas transportation industry still faces challenges. Port congestion, geopolitical disturbances and inflation are some of these. Still, it seems to face external pressures as borders continue to reopen. Tsakos Energy Navigation Limited (NYSE: TNP) may find new opportunities as demand for energy commodities and tankers increases. In this global context, it continues to take advantage of the modernization and expansion of the fleet. It can offer more growth potential, which will allow you to accelerate your rebound. Meanwhile, the stock price is on a strong downward trend, making it a good bargain for many investors.

Company performance

The last two years have been a challenge for Tsakos Energy Navigation Limited. In the second half of 2020, it seemed that the demand for energy sources had exceeded its maximum. Business leaders thought it would take longer to recover if it were still possible. In turn, oil and gas companies were negatively affected by falling demand and prices. Restricted transportation of goods due to restrictions and geopolitical tensions burdened him more.

But in just over a year, that pessimistic outlook seemed premature. The industry is now moving towards another upward trend. As such, the trend is another ridge-to-ridge cycle. The same logic applies to TNP, which also shows a slight upside from its previous performance. Oil demand is expected to exceed pre-pandemic levels, putting more pressure on drillers and carriers. Fortunately, TNP is not far from market trends. In its most recent report, its capacity utilization is 96.1% compared to 91.1% in 4Q 2020. It shows that the demand and supply of oil and gas it carries are recovering. Therefore, the continuous modernization of the fleets and the expansion of their operations are timely.

Its operating income from $ 139.13 is a year-on-year growth of 5.3% compared to Q4 2020. It shows a gradual recovery since its fall in the second half of 2020. In addition, it should be noted that Q1 and Q4 are the typical highs of the company that they also show their income. In fact, the gloomy mood that has dominated its operations over the past year is turning into splashes of hope. But, of course, inflationary pressures continue to intensify. However, the company shows its efficient asset management, keeping its expenses stable. In addition, its non-central operations are more viable. Excluding impairment charges, basic operations for the quarter will remain viable, given the EBITDA Margin of 0.22. Its net operating cash flow of $ 16.64 million is higher than 4Q 2020 and 1Q 2021. It shows that adjustments in its core operations result in more cash inflows. Faced with this, the company demonstrates its continuous rise, which allows it to maintain and expand its operations.

Operating income

Operating income (MarketWatch)

EBITDA margin

EBITDA margin (MarketWatch)

Operating cash flow \

Operating cash flow (MarketWatch)

In addition, it accelerates the modernization and expansion of the capacity of its fleet. Earlier this year, it began its movement with the order of four feedermaxes. They all run on dual fuel and LNG. TNP is known to focus more on time rental than on spot markets. Currently, most of their fleets are leased on time. The equivalent of a daily time chart or TCE is equivalent to $ 16,891, which is 8% higher than the previous quarter. There is no further news yet, as the company has not yet released its 1Q report. But in the first table below, it clearly is TCE has exceeded the average of detect ECTs. In the second table, we can see the average TCE of time chart. Its current rates are much lower than the market average, except for its Suezmax with $ 22,907 TCE.

Occasional rates

Occasional rates (Hellenic News)

Time chart

Time- Letter (Hellenic News)

Time-Charter and Spot

Time-Charter and Spot (Tsakos PowerPoint)

More importantly, its LNG, which is still relatively young, can stimulate its performance. It plays a more vital role as geopolitical tension occurs in the eastern part of Europe. We must keep in mind that most parts of the region depend heavily on natural gas from Russia. In the middle of the war, there is a big gap that requires substitutes. That’s why it now has more opportunities for the U.S. to supply LNG. The same goes for Tsakos, which continues to experience an increase in its demand and tariffs. It enjoys a solid foundation in the oil market in Europe. As such, the increase in tariffs for its oil and gas is still reasonable. It can also keep up with the massive increase in estimated market TCEs, as shown in the second table. Once the old TC contract expires, it can further increase its rates to accelerate growth.

In relation to its competitors, Tsakos shows a similar trend. It has a market share of 8.4%, well above the 7.2% in the comparative quarter. Some notable peers of his size include Ardmore (ASC) and NGL (NGL). Meanwhile, revenue growth is reasonable compared to the market average. As such, he remains one of the leading figures in the sector.

Market share

Market share (MarketWatch)

This year, we expect more attractive growth prospects. Zacks estimates that sales are as high as $ 588 million. My estimate is lower, but it also shows a potential increase of $ 552 million. It is in line with the average growth of recent years and quarterly values. I think it’s a conservative estimate, given inflationary pressures. But of course, it can still exceed our expectations, given the opportunities, especially in Europe. Its expansion can become another major growth engine.

Operating income

Operating income (Zacks and author’s estimate)

How Tsakos ’energy navigation can sustain its growth

Tsakos Energy Navigation Limited shows a more attractive outlook, given its continued rise. It can still be gradual due to several factors. However, the opportunities he sees in the midst of the war in Ukraine lead to a larger market. It also has the ability to increase its rates, which are still lower than recent TCE estimates. Many recent studies convey a 3.5% -5.6% increased demand for tanker ships. Further estimates show that demand for crude oil per day can recover to 99-104 million barrels. It is still logical, given the shift of Russian oil and gas to other suppliers as demand increases. Meanwhile, Asia is beginning to increase its imports.

Demand for crude oil per barrel

Demand for crude oil per barrel (Statistician)

Even better, the expansion and modernization of their fleets is timely and relevant. A few days ago, it received the fourth DP2 tanker ship it ordered earlier this year. In addition, it plans to further expand its LNG tanker fleet. In fact, it has a new order for LNG tankers, which is under construction apart from the three existing LNG carriers. You can also look at mergers and acquisitions, which are in line with your goal. It currently has a diversified fleet of 72 vessels offering energy commodities to the market.

In addition, debt reduction is part of their strategies. From 2016 to 2021, the reduction continued although the rate of decline varied. At $ 1.37 billion, debt is already more than 20% lower than in 2016. It is also less than 12% in 2020, which shows that the reduction in debt has accelerated in the last year. Combining debt expansion and reduction is a good strategy to sustain growth. As you can see, cash levels are lower as the company expands and pays off its loans. Modernization, expansion, efficient asset management, and financial leverage are vital to its success.

Cash and cash equivalents and loans

Cash and cash equivalents and loans (MarketWatch)

Evaluation of the share price

Shares of Tsakos Energy Navigation Limited have been on a strong downward trend over the past month. He may suggest that he has already reached his resistance. At $ 8.65, has already been cut by 33% from its maximum price. It is also well below pre-pandemic levels, proving that it is at a good bargain. With its P / B ratio of 0.16, the price shows a possible undervaluation. The value remains low at 0.18 although we use PTBV, as it is capital intensive. He also has the lowest proportion among his close peers.

PB ratio

PB ratio (Yahoo Finance)

When it comes to dividends, the company may not be consistent. But he plans to pay $ 0.10 per share. To be honest, having preferred shares may be more interesting, considering the $ 0.58 per share dividends. It is much higher and more consistent than ordinary dividend payments. To better evaluate the price, we can use the DCF model

DCF model

FCFF $ 19,133,000

Cash and cash equivalents $ 132,000,000

Outstanding loans of $ 179 million

Perpetual growth rate 4.80%

WACC 12%

Ordinary and preferred shares outstanding 41,000,000

Stock price $ 8.65

Derivative value $ 9.90

EV / EBITDA

EV $ 1,690,000,000

Net debt $ 1,244,000,000

Stock price $ 8.65

Ordinary and preferred shares outstanding 41,000,000

Derivative value $ 10.86

Both models state the possible undervaluation. There may be a 15-26% increase in the next 12-24 months. As such, the price is a good entry point.

Bottom line

Tsakos Energy Navigation Limited is on the verge of a sharp rise. It remains sustainable, given its continued expansion, modernization, and debt reduction strategies. Growth prospects are attractive as demand for oil and gas increases. But, the stock price does not adhere to the solid fundamentals, giving a good bargain. The recommendation is that Tsakos Energy Navigation Limited be a purchase.



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