Teekay Tankers: Surfing The Unexpected Giant Waves With Care

Summary

• Teekay Tankers, Ltd. ended the fiscal year 2020 with a strong liquidity position over $370 million and reduced net debt by $419 million.
• The Fiscal Year end result still reported a positive growth despite the negative trend in its quarterly net income.
• The company reported a net loss of $73.3 million in the fourth quarter of 2020.

Teekay Tankers Ltd. (NYSE:TNK), a firm that operates through crude oil and refined petroleum products tankers, and ship-to-ship transfer segments, seems to be riding the giant waves whether up or down. Crude oil prices hit major slumps and oil demand drastically declined during the pandemic. It affected the operations of the firm's oil tankers, reporting negative growth in quarterly sales for the year 2020. Amidst the pandemic effect, Tankers still made a positive growth in its net income ending the fiscal year 2020. The firm has taken measures during the unexpected waves by reducing its net debt to have a strong liquidity position while in the middle of the crisis. This is proof of the company's strength and perseverance to maintain its stability. One can see it in the stock price movement as it starts to show an increase in the first quarter of 2021.

Analyzing the Financials of the Company

Teekay Tankers Ltd. struggled in terms of sales as growth turned out to be negative for three consecutive quarters ending of the fiscal year. As the oil demand was reduced due to the COVID-19 pandemic and the unwinding of floating storage of the firm, operating sales/revenue decreased further at the end of the fourth quarter of the fiscal year 2020.

Sales/Revenue for the fourth quarter of 2019-2020 decreased by approximately 60% from $303.89M to $127.8M. COGS also decreased by approximately 32% from $198.96M to $135.82M. As COGS and Sales/Revenue decreased, Net Income was insanely decreased by 216% to a negative Net income of ($73.29M) from $63.07 in fourth. quarter 2020 and 2019, respectively. This is also the result of a continuous decrease in revenue days per total fleet as one of the firm's main sources of revenue that can be seen on the chart "QUARTERLY REVENUE DAY PER TOTAL FLEET." below. And also, the decrease in net income from the fourth quarter 2019 to 2020 was negatively impacted by a $10.5 million freight tax accrual adjustment relating to 2020 and an increase in the write-down of assets amounting to $18.7 million compared to the fourth quarter of 2019.

Quarterly Revenues and Expenses

Source: MarketWatchQuarterly Net Income

Source: MarketWatchQuarterly Revenue Per Day Per Total Fleet

Source: MarketWatch

Meanwhile, on a year-end basis, Sales/Revenue also decreased by 6.09% from $943.92M to $886.43M year ending December 31, 2019, to December 31, 2020, respectively. Cost of Goods Sold decreased by 18.39% from $778.09M to $635.01M on the fiscal year 2019 and 2020, respectively. Amidst the decreasing trend of net income from a quarterly point of view, net income for the Fiscal Year-end for 2020 increased by 110.10%, from $41.36M in 2019 to $87.32M in 2020. Amidst the pandemic effect, net income increased approximately by 29% from 2016 to 2020.

Estimates for the earnings of tankers by 2021 based on the linear chart analysis would be approximately a decrease to $60 million considering the declining trend of its 2020 quarterly performance, and also as a conservative view for the pandemic effects on crude oil supply, although we can say that tankers were taking some measures on decreasing the expenses, they also have maintained other admin expense that made their net income reach on its current state.

Annual Revenues

Source: MarketWatch

Annual Net Income

Source: MarketWatch

Yearly Revenue Per Day Per Total Fleet

Source: MarketWatch

Liquidity

Teekay Tankers LTD ended the Fiscal year ending December 31, 2020, with a strong liquidity position with a current ratio of 1.24 of over $370 million by reducing their net debt by $419 million and selling assets such as tankers to further deleverage the company's balance sheet. Ending their free cash flow for December 31, 2020, amounted to $331.92 million, a huge increase of 213% from its prior year. The company seems to be liquid enough to be well-prepared for the next recovery of the crude oil and tankers industry as the economy rises from the crisis held by the COVID-19.

Net Operating, Investing, and Financing Cash Flow

Source: MarketWatch

Free Cash Flow

Source: MarketWatch

Profitability

Net Margin	9.85%
Return on Assets	4.29%
Return on Equity	8.44%

Click to enlarge

One of the reasons that can help the investors to consider holding and buying this stock, given the table above with a small net margin and a low Return on assets and equity, is the hope that this firm is equipped enough to surf on the wave coming in 2022 as industry experts expect global oil demand to fully recover. As the demand coming this 2021 expects to be lower than the 2019 levels, tankers should seek the opportunity this year to maintain their financial stability and strong liquidity levels to be able to easily hop on the upcoming recovery as expected.

Stock Price

TNK stock may have reached its bottom last November as we can see the formation of new higher highs and higher lows of the trend coming from a long-term downtrend since it started last May. With the alignment of three MA's (20, 50, and 100-day MA), after the price crosses all these indicators, it may prove that we have seen the bottom and there would be baggers on this stock, waiting for the effect of recovery of the crude oil industry. As new highs and lows are being formed, investors/traders should be still cautious at this point as crude oil demand is still at its low level and can be lower than 2019 for the coming year. But for now, based on the technical analysis, the stock price should support and bounce between $12.40 and $13.40 level and break the $14.70 level to confirm and continue the formation of its short-term uptrend state and maintain its bullish movement for a long period.

Source: TradingView

Summary

Teekay Tankers Ltd. indeed made some precautionary measures from the pandemic effect by reducing their net debt, agreeing to sell tankers, options to purchase their vessels, winding down some of its operations just to maintain stability on the firm's financial health. But as the industry experts estimate that crude oil demand to be lower than the levels of 2019 this 2021, we might expect some struggles for the firms' performance and profitability. But having a strong liquidity status for the company will be a great pre-emptive measure to maintain its stability and to be able to ride the trend coming this 2022 with the hopes and possibilities that the industry experts' estimates would come into reality as we may see the effect of economic recovery to other industries and showing proofs of comeback performances.

Short-term Investors/Traders should be warier for this stock as there's no assurance of recovery for this period. Experts' estimates are one of the reasons that investors should take a deep breath and further analysis on entering this stock. It may seem to be uptrending based on the stock chart as shown above, but the fundamentals don't fit right to confirm the bullish continuation of the stock price. Unless we see further confirmation for the report this coming quarter one to Quarter two and a breakout at the $14.70 stock price level, investing in this stock for the short-term may be different. As for now, I do not recommend this stock as it is too risky to hope for a bullish continuation for this early period of economic recovery specifically on the crude oil demand status.

As for Long-term investors, this would be an opportunity for them to invest in this stock as we can consider the stock has reached its possible bottom stock price at $9 - $10 levels. A possible timing on averaging down on this stock for those investors who have held their positions and also a good stock price position as it is the early stage or the preparation stage of the stock to either go sideways or go bullish if crude oil demand recovers earlier than expected. With a possibility to ride the giant wave coming from Teekay Tankers opportunity to have a comeback profitable performance as our economy recovers.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[7519671]

While ROA and ROE give useful perspectives on certain aspects of a company, the most appropriate measure of profitability for a hard-asset-heavy company like TNK is Return on Invested Capital (ROIC)-- some call it ROCE or Return on Investment.
www.reuters.com/...
Reuters sez TNK's ROI is 12.32% -- not blow your socks off, but I'd take it.

[mendo]

@7519671 what all do you include in the "invested capital"?

[7519671]

@mendo pretty much growth capex, but companies take wide latitude on what they include under non-GAAP terms. ROE describes how a company's stock has done. ROA a broad category of assets. ROIC: you buy a second hot dog grill that lets you sell an additional numbr of hot dogs that generate a certain amount of free cash from which you pay back the invested capital and cover SG&A etc. and leaves you with an identifiable IRR.

[nomad33]

The company will be using some of their cash position to buy back the expensive leases on their fleet which they took in previous years. This will lower their breakeven level but will not return TK to profitability until the market turns up in the 2nd half of 2021 hopefully.

[Hohum]

@nomad33 - You are mixing up your stock tickers. TK is the parent entity, essentially just a holding company. TNK is the ticker for Teekay Tankers. Yes, TNK is essentially playing a waiting game to the 2nd half. Most oftheir time-charter coverage runs of the current qtr or the next qtr.