International Seaways upbeat on tanker market prospects

INSW’s reported earnings for 2023’s Q3, coming in at $1.99 per share, exceeded expectations of equity analysts who had a consensus estimate of $1.65 per share. Though hires are down from the historical highs of 2022, Q4 earnings last year came in at $4.40 per share, its Q3 2023 presentation on the call revealed that a still healthy charter market, and deft financial maneuvering, were fueling INSW to benefit from the interplay of the company’s financing strategies with operational economics.

The company controls a fleet of 75 tankers totalling 9 million dwt and its stock performance shows recent gains from around $36 per share in early summer, up to nearly $50 per share in recent trading.

Spot hires for its VLCCs reached just shy of $41,000 per day, with its Suezmaxes garnering $38,700 per day. Aframaxes in the crude trades saw TCE’s of $34,000 per day. In the past year, the product tanker segment has been a good performer at INSW; in Q3, products accounted for $125 million of TCE revenue, more than half of the $236 million total.

Commercial Director Derek Solon explained, during the Q&A session, “we are going to continue our prudent asset allocation, especially in the MR sector…because the rates have been so good on the MR side, we see increasing opportunities for charters. What we’re looking for is multiple year charters for some of the ships around the 2008-2009 vintage”. After noting that some older vessels have been sold, he said: “We want to keep the exposure in the MR sector, because the rates have been so good.”

The call highlighted continued cash generation, allowing for deleveraging (reducing debt) while increasing future capacity to borrow, a new $160 million credit facility was arranged in Q3, bringing the loan/value ratio down to 19%- its lowest level ever. Thirty vessels, half of those actually owned by INSW, were described as unencumbered.

Cash returns to equity holders are also continuing; INSW announced a combined Q3 dividend of $1.25/share ($0.12 regular plus $1.13 supplemental). Both CEO Lois Zabrocky and CFO Jeff Pribor noted that the total dividend yield for 2023 has equated to 16%- an extraordinarily shareholder-friendly payout.

Lois Zabrocky brought together the multiple positives, including broader supply/demand dynamics featuring an aging fleet in the face of a low orderbook. In her remarks on the call she opined that: “Overall, we expect a great run for tankers over the next few years; regional imbalances of oil should continue to increase the need for tankers…driven by the growth of oil production in the West, and largely the growth in oil demand is driven by emerging markets in the East.”

In her discussion of INSW’s finances, she said: “Our fortress balance sheet highlights the success of our balanced capital allocation strategy over time. We have acquired assets…on the books [book value] of $2 billion, with a current value of $3.3 billion.”

One highlight of the presentation was the low breakeven per day for the fleet, with Zabrocky saying: “Our cash breakeven, for the next 12 months, is under $15,000 per day. This is an exceptionally low level, and a key differentiator for International Seaways. This low breakeven level paves the way for enhanced free cash flow in 2024.” CFO Pribor, during the Q&A session, noted that the reductions in the breakeven level was “primarily a balance sheet item…also benefitted from commercial department putting ships on more time charters”.

Though last year’s drama with Frontline (NYSE: FRO) and Euronav (NYSE: EURN) has been resolved, INSW had been drawn into FRO’s acquisitive adventures, with FRO acquiring a minority interest reaching 16% of outstanding INSW shares - acquired in early 2022 at levels below $30 per share.

In the Q & A session, Stifel analyst Ben Nolan asked if there has been any further dialog on “the strategic investor issues” a year and a half on. In a highly nuanced response, CEO Zabrocky said: “We have been, and will continue to run International Seaways for all of our shareholders and stakeholders…we feel very good about the returns that we’ve been do deliver to all of our shareholders.”

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