CPLP and TNP,
Both companies own predominantly oil product tankers which are trading at strong spot rates. Low oil prices actually have benefited oil shippers as countries like India and China are loading up their strategic reserves. It also has meant low fuel costs for the voyages.
CPLP yields 18%, trading at $5.10 versus NAV of $6.46 (Wells Fargo Estimate), debt to assets is only 30%. In cc, company implied they would NOT issue new equity to buy ships at these levels. CPLP has 2 containerships that it is struggling to employ (some more are on long-term charters), but still covers dividend even if they are not hired. Some oil tankers are rolling off this year and are expected to be rehired at higher rates.
TNP yields 3%, trading at 58% of NAV (Wells Fargo Estimate), PE of 5, share buyback. TNP has 100% debt to equity + preferred stock.
Wells Fargo has a buy on both of these stocks by the way.
Negatives
I think shipping is like the airlines of old -- a great place to lose money with terrible capital allocation - dilutive equity deals and overbuilding leading to low rates, too much leverage, etc. That being said, as a trader one said there is no such thing as bad investment just bad prices.
Thesis
Both retail and institutional investors are getting killed in MLPs and shipping and indiscriminately selling anything oil or shipping related leading to valuation gaps in TNP and CPLP. Plus shipping does have a terrible track record with shareholder money, which is why I have ignored shipping names for many years now (except for a brief and small money-losing foray into CPLP mid last year).
CPLP should be able to maintain its dividend so you get paid 18% carry that will hopefully cushion further price declines. I think the stock could bottom or rebound once investors see that its dividend stays solid. (For that kind of yield, I think CPLP trading at NAV would be reasonable.) For TNP the catalyst is not as clear cut, but I like the low PE, big discount to NAV, and the buyback -- the company will have more flexibility in general even though it does have a higher debt load.
What am I missing
Potential counterparty defaults? PBR is a counterparty of CPLP, for example, but apparently rates are higher than what PBR signed for.
Missing some macro factors that would cause oil tanker rates to decline precipitously? Iran-Saudi fight leading to shutdown of Persian Gulf?
Bloomberg forecasts oil tanker rates will decline 16%. However, 2015 rates are up 66% from 2014, so contracted rates still will likely be higher than what ships got previously. Bloomberg also mentions the lifting of Iran sanctions could be negative for rates because Iran has a lot of tankers
Dry bulk and container shippers are getting decimated for good reason (rates super low). It makes me queasy but hopeful investors are assigning guilt by association and that I am not missing something.
Help
Please feel free to shoot down my investment thesis and walk me off the ledge.
I will admit that have not had historically great performance with shippers. There are many investors who understand shipping better than I do, unfortunately. I am hoping they are all beat up and/or fully invested already and that I am not missing something more fundamental. If I do invest, I do intend to gear up and start tracking shipping news and tanker spot rates :)
MC |
