On September 7th, 2023, Tsakos Energy Navigation (NYSE:TNP) published its Q2-2023 earning report. Results were a bit worse than investors were expecting, and the stock lost up to 7% in the first trading hours after the results announcement.
In this article, I will provide an overview of Tsakos’ Q2-2023 results and I will explain why I believe Tsakos is still a BUY opportunity even after today’s results.
If you are interested in tanker companies, I also cover International Seaways (INSW), Scorpio Tankers (STNG) and Teekay Tankers (TNK).
TNP stock performance
Tsakos is currently trading at $18.9/share, equivalent to a market cap of $559 M. As it is possible to see from the chart, the stock has gained 12% year-to-date and 19% year-on-year. Back in March 2023, Tsakos reached the 52-week maximum, $24.5/share and then dropped to values between $16/share and $19/share until July 2023 when it started a bullish rally bringing the stock value to $21.1/share in mid-August before declining to the current $18.9/share. The 52-week minimum was reached in May 2022, at $15.2/share.
Tsakos Energy Navigation Q2 2023 earnings
During Q2-2023, revenues were $221 M, up 2% year-over-year. The increase in revenues is only 2% despite the TCE day rates increasing 31% y-o-y (from $29.2 k/d in Q2-2022 to $38.3 k/d in Q2-2023) because it was more than compensated for by a drop in total operating days, down 10% from 5,553 days to 4,972 days. This decline in operating days is mostly due to a reduction in the number of Tsakos’ vessels in operation that, in Q2-2023, were 58 while in Q2-2022 were 65 (due to dry-docking). If one compares Q2-2023 revenues with Q1-2023, it is possible to notice a 15% drop, from $261 M to $221 M that can be partially explained by a strong reduction in day rates, from $41.8 k/d in Q1-2023 to $38.5 k/d. In addition, even operating days decreased by 8% or by 419 days quarter-on-quarter due to Tsakos having 4 fewer vessels.
Looking at costs, the total OpEx was $139 M, down 13% y-o-y due to a strong reduction in voyage expenses (from $63 M to $39 M) due to lower bunkering costs. Other relevant OpEx were vessel operating expenses (flat y-o-y at $47 M), D&A (flat at $35 M) and G&A (increased by 68% to $12 M).
EBIT was $83 M, up 44% y-o-y since OpEx decreased (-13%) and revenues (+2%). Net income was positive at $62 M, up 32% year-on-year.
Focusing on the synthetic cash flow statement provided by the company, it is possible to understand that – during the first half of the year – CFFO was positive at $143 M, driven by the high profit, while cash flows from investing and financing were negative (-$49 M and -$35 M, respectively). Cash flow from investing was affected by the sale of six first-generation MRs and two handysize product tankers as well as the investment in new vessels.
In terms of net debt, Q2-2023 marks an important result with net debt reaching $1 B, down by $300 M year-on-year: cash and cash equivalents amount to $0.5 B while financial debt is $1.5 B.
Tsakos Fleet Growth Program
As mentioned before, during the first quarter of 2023, Tsakos has sold six first-generation MRs and two handysize product tankers leveraging the strong demand for second-hand vessels and therefore capitalizing on high prices.
The sale of these vessels, and potentially others, will fund the acquisition of new dual-fuel and more efficient and sustainable vessels. In the table below, it is possible to see the status of orders placed by the company. The first new vessels should join the fleet before the end of the year. However, it should be pointed out that some of the delivery times shown in the table below have been delayed if compared with what was communicated in Q1-2023.
Tsakos Energy Navigation
Market outlook
Despite tanker day rates gradually decreasing, they are still at very high levels that enable Tsakos to generate healthy cash flows. I believe that this situation is destined to remain like this for a while due to the tanker demand-supply dislocation. Indeed, demand for oil/product tankers will remain strong due to the EU ban on Russian oil (and oil products) with the subsequent need for the EU to source oil from further countries via sea. At the same time, Russian oil is being sold via tankers rather than being piped to the EU. All these dynamics are pushing for a strong demand for oil tankers and longer-than-average mileage. However, the supply of tankers is limited and in the next couple of years will only marginally increase due to shipyards already being fully booked and the cost for new vessels being quite high.
Risks
The main risk to which Tsakos is exposed is represented by a potential reduction in oil (and oil product) vessel demand. Should the gap between the demand and supply of tankers close, the day rates will unavoidably reduce with an impact on Tsakos’ capacity of generating a sound FCF. However, I consider this risk to be quite unrealistic, at least in the short/medium term.
Like every company that operates with vessels across the world, Tsakos has to be careful about potential risks coming from piracy assaults or hijackings and from environmental regulations. Should new laws be made to increase the sustainability of vessels, companies might find themselves in a situation where they need to carry out investments to adapt to the new regulations.
Dividends
As the company had already announced, Tsakos will pay shareholders a second tranche of the semi-annual dividend in December 2023 for a value of $0.30/share. In addition, the company declared a special dividend of $0.40/share to be paid on October 26th, 2023. Overall, this will bring the 2023 dividend to $1.00/share.
Conclusion
Tsakos Energy Navigation is a solid company that is taking advantage of the current tanker market situation: The company’s management is showing a clear plan to make the company profitable even in the future. Current cash flows, together with the cash income from the sale of older vessels, are being used to reduce the indebtedness and to modernize the fleet with new vessels that are more efficient and more sustainable from an environmental point of view.
The current drop in price after the Q2-2023 results announcements represents a good entry point for investors looking for an oil tanker play.
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