Source: Teekay Corp. Presentation
Investment Thesis
The Bermuda-based Teekay Corporation (NYSE: NYSE:TK) released its fourth quarter of 2020 results on Feb. 25, 2021.
Q4 results were overall decent from Teekay Parent and Teekay LNG, while Teekay Tankers' results reflected the tanker market's recent weakness. For the full year 2020, the company reported consolidated adjusted net income of $83 million or $0.82 per share, compared to an adjusted net loss of $19 million or $0.19 per share in 2019.
Note: These results included the company’s two publicly-listed consolidated subsidiaries, Teekay LNG Partners L.P. (NYSE: TGP) and Teekay Tankers Ltd. (NYSE: TNK), collectively called the daughter Entities.
Both are trading on the NYSE, separately. However, Teekay, including its subsidiaries other than the daughter Entities indicated above, is referred to in this release as Teekay Parent.
I have recently published the fourth quarter and full-year results for Teekay LNG Partners L.P. and recommend reading the article by clicking here.
I will probably publish my opinion on Teekay Tankers as well.
In short, Teekay Corporation consolidates three separate shipping segments:
Hence, Teekay Corp represents an attractive and diversified way to participate in the potential appreciation in TGP and TNK, especially in H2 2021.
One important element is that the Teekay group has allocated most of its capital to the growing LNG segment over the past two decades. A quick look at TGP is showing the importance of this segment for the group.
CapEx for gas now represents about 80% of the total CapEx, and Tankers get the remaining ~20%.
The investment thesis that I recommend is to start accumulating the stock with a long-term horizon.
As I said in my preceding article, the world economy will probably recover by H2 2021 or sometime in 2022, at the latest, and companies like Teekay Corp. will necessarily benefit from that. The expected World recovery and the booming LNG sector give us reasons to be optimistic about this company's future.
However, the best strategy that I recommend is to trade short-term your long-term position. I think it is reasonable to allocate about 30% to 40% of your TK position for this purpose. It will provide you with an extra gain whereas reducing the risk of a severe unannounced downturn.
CEO Kenneth Hvid said in the conference call:
[I]t's been a very busy year. With record annual results at Teekay LNG and Teekay Tankers, we have strengthened our balance sheets and build resilient financial positions. We've also performed well from an operations and commercial perspective despite the challenges resulting from COVID-19, which we have so far successfully overcome.
TK - The Raw Numbers: Fourth-Quarter Of 2020 And Financials History
TK Corp. (Consolidated) | 4Q'19 | 1Q'20 | 2Q'20 | 3Q'20 | 4Q'20 |
Total Revenues in $ Million | 570.29 | 574.05 | 482.81 | 396.52 | 362.30 |
Net Income in $ Million | 11.34 | -44.81 | 21.72 | -35.41 | -19.44 |
EBITDA $ Million | 275.01 | 191.23 | 230.51 | 79.84 | 85.17 |
Adjusted EBITDA in $ Million | 325.47 | 342.20 | 315.87 | 227.00 | 201.06 |
EPS diluted in $/share | 0.11 | -0.49 | 0.21 | -0.35 | -0.19 |
Operating cash flow in $ Million | 127.18 | 438.96 | 336.73 | 118.44 | 89.88 |
CapEx in $ Million | 10.81 | 8.69 | 4.14 | 5.64 | 8.04 |
Free Cash Flow in $ Million | 116.37 | 430.27 | 332.60 | 112.80 | 81.84 |
Total cash (not incl. Restricted) $ Million (three units) | 627.23 | 645.12 | 476.07 | 391.25 | 348.79 |
Long-term debt (incl. current) In $ Million | 4,702.84 | 4,430.62 | 4,014.02 | 3,829.43 | 3,766.1 |
Shares outstanding (Basic) in Million | 101.43 | 100.89 | 101.20 | 101.11 | 101.11 |
Source: Teekay release
Analysis: Revenues, Earnings Details, Free Cash Flow
1 - Operating Revenues (incl. Voyage expenses) were $362.30 million in 4Q'20
Operating consolidated revenues were $362,296 million in Q4, down 36.5% from the same quarter a year ago and down 9.4% sequentially. The net loss attributable to shareholders of Teekay was $19.44 million, or $0.19 per share. The adjusted net income attributable to shareholders of Teekay was $2.8 million, or $0.03 per share.
Total adjusted EBITDA came to $221.062 million in the fourth quarter of 2020, down 38.2% over the same period of the prior year ($325.465 million).
The Company’s consolidated results during the fourth quarter of 2020 decreased compared to the same period of the prior year, primarily due to lower earnings from Teekay Tankers as a result of lower average spot tanker rates and a higher number of scheduled dry-dockings during the fourth quarter of 2020, as well as the cessation of production of the Petrojarl Banff (Banff) FPSO unit in June 2020 due to the decommissioning of the Banff oil field.
Source: TK Presentation
2 - Free cash flow is estimated at $81.84 million in 4Q'20
Note: Free cash flow is cash from operations minus CapEx
Teekay Corp.'s 2020 free cash flow is $957.51 million with a Q4 consolidated free cash flow of $81.84 million.
3 - Debt analysis: Net debt is estimated at $3.42 billion in 4Q'20 (consolidated and including current)
Teekay Corp. reduced proportionate net debt by $560 million, or over 10% from the same quarter a year ago. Liquidity has increased to $1.0 billion this quarter. In the press release, the company said:
As at December 31, 2020, Teekay Parent had total liquidity of approximately $173.4 million (consisting of $44.8 million of cash and cash equivalents, and $128.6 million of undrawn capacity from a revolving credit facility). On a consolidated basis, as at December 31, 2020, Teekay had consolidated total liquidity of approximately $1.0 billion (consisting of $348.8 million of cash and cash equivalents and $658.8 million of undrawn capacity from its credit facilities).
4 - Teekay's parent Winding down the FPSO segment.
It has been the company's weakest link, and many shareholders have been upset with how the company managed it. The decommissioning of the Petrojarl Banff FPSO remains a major negative on cash flows.
However, the company completed phase I of the decommissioning.
Source: TK Presentation
Teekay Parent's results improved due to the new Foinaven FPSO contract entered into March 2020, higher cash flows from the Hummingbird FPSO, and lower net G&A and interest expense partially offset lower earnings from the Banff FPSO, which ceased production and entered decommissioning in June 2020.
5 - Q1'2021 outlook
Source: TK Presentation
Technical Analysis (Short Term)
Teekay Corp. has wonderfully recovered from its November 2020 lows. The stock has more than doubled in the last six months, and it is normal to experience a temporary period of consolidation.
Its two daughter Entities (TPG and TNK) expect to do well in 2021, especially the LNG segment.
Technical Analysis
TK forms an ascending channel pattern with a line resistance of $3.75 and line support of $3.18.
The trading short-term strategy will be to sell partially (35%~) at resistance or a range of $3.75-$3.80 and buyback if the stock retraces to its pattern support at $3.15-$3.20. If TK crosses its pattern support (breakdown), I expect the stock to drop to its 200MA between $2.55-$2.65. Conversely, if TK momentum is strong, I expect the stock to reach the range of $4.60 -$5.40.
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