And the consensus forecast for TNK is positive: a steady dividend yield of 11% with upward revenues and EPS over the next two years.
But I am not sure it's the right time to buy and hold TNK with a 2-3 year investment horizon, ie. before their anticipated 3Q results release at the end of October. TNK is the listed spin-off of Teekay Corp and it is an almost pure-play on conventional tanker assets. TNK expanded its fleet by acquiring 13 vessels from parent Teekay Corp in early 2012. The CEO Bruce Chan's stated aim is to achieve a balanced chartering profile in terms of period/time charters versus spot market earnings, while the company operates a mixed fleet of Aframax, Suezmax, VLCC, LR2 and MR tankers:
To me, the central question about TNK is concerned with top-line growth - revenues in 2012 and 2013. To answer this question, I have taken Bruce Chan's current balanced portfolio, and I have simulated worst case and best case revenues in the immediate future, ie. assuming historical TCE and TC benchmarks are a reliable reference for future earnings. I have considered four scenarios:
1. Base case. In this scenario the forecast 2012 revenue is $171m which is in line with the consensus forecast referred to above. The base case therefore only validates my scenario model. I have assumed that TNK's spot market earnings are in line with the historical 12-month moving average benchmarks for the respective vessel types, with static TC earnings in line with current contracts.
2. Revert-to-Mean. In this scenario, I made some assumptions about TNK's re-chartering risks. Eight vessels currently on period contracts need to be chartered sometime during 2012 and 2013. The TC earnings are at a premium of 80% (!) to the average 1-year TC 12-month moving average benchmarks. TCE earnings continue to be in line with the historical 12-month moving average benchmarks. If these eight vessels can only be period chartered at the average benchmark, I forecast 2013 earnings for TNK of $156m, ie. 9% down on 2012 forecast earnings.
3. Oops. I have you believe the IMF's latest global macro-economic outlook that 2013 will be worse than 2012, then you are likely to think that my 'Oops' scenario is plausible ... In this scenario, I assume that TCE spot earnings fall to their historical 12-month minimum and the new TCs are also only at their historical 12-month minimum. I forecast 2013 earnings for TNK 22% lower, at $133m.
4. Strawberries and Champagne. Perhaps you're an optimistic cynic ... And you believe that the IMF does not like revising its forecasts downward ... In other words, the IMF would prefer to announce that it under-estimated growth for 2013 so their latest macro-economic outlook is extremely pessimistic. In this case, I have assumed that TCE spot earnings will rise to their historical 12-month maximum in 2013 and the new TCs are also rise to their historical 12-month maximum. So I forecast 2013 earnings for TNK 30% higher than 2012, at $223m.
For your reference, below is my input data table for my scenarios.
I think TNK's stock price is still on the way down because I don't think there will be a silver lining to Bruce Chan's earnings presentation at the end of October. I see this as a buying opportunity - using a similar timing strategy to the one I'm using for Capital Product Partners (CPLP). If Teekay Tankers' October news about re-chartering is neutral or positive, I will be long TNK as quickly as possible. But I think this is unlikely because I'm not that cynical about the IMF's gloom and doom outlook for 2013. If TNK's re-chartering news is negative, I suggest waiting a few weeks for the dust to settle ...
I would expect TNK's stock price to fall below its low of $3.42 from December 2011 and then I'd buy. I'm a value investor, so I am aiming to hold some tanker stocks for 2-4 years.