Doing estimates of private market value is often difficult. I recently read through the annual report of Tsakos Energy Navigation (NYSE:TNP), in which the CEO mentioned how much the ships were worth on the open market compared to the value on the books. After running a few calculations, I came to the conclusion that the private market value of Tsakos was around $75/share, a premium to the current quote.
Now, what in my analysis could go wrong here? A lot:
1. Protectionism could erupt and diminish the amount of oil shipped across our oceans.
2. Too many new boats could be built, eroding the value of existing boats.
3. I could have done the math wrong.
4. The CEO may have overstated his case. (You can never tell with any CEO whether everything was stated correctly. I actually don't think that anything here was stated incorrectly and I trust their representations.)
I like Tsakos from both a strategic and valuation standpoint, but it is not a risk free investment; like most cyclicals, it relies on the robustness of the global economy, and the willingness of economies to buy oil from overseas. Given the uneven distribution of oil across our world, I would expect that oil shippers will be in a good spot for a while, but one can never tell for sure.
Full disclosure: Author has a long position in TNP
TNP 1-yr chart