Less than a week ago, International Seaways, Inc. (NYSE:INSW) released its Q1-2022 earnings: the company reported a net loss, but the big picture is positive. In this article, I propose a review of the Q1 results, and I reiterate my BUY thesis. Indeed, this is not my first article about International Seaways: I have previously written an article about FY2021 results in which I suggested investing in the Company. If you are interested in stocks related to the oil and gas industry, you can have a look at my previous articles about Range Resources (RRC) and ReconAfrica (OTCQX:RECAF).
International Seaways is currently trading at $22.08/share, equivalent to a market cap of $1.1bn. The stock is up 50% year-to-date and 9% year on year. Compared to the trading price at my previous BUY recommendation ($17.1/share, March 14th), the stock is trading at a 29% premium. Despite International Seaways having already seen rapid growth, I believe there is still potential upside ahead.
The 52-week minimum is $13.7/share (January 26th, 2022), while the 52-week maximum, $22.3/share, was reached a couple of days ago (May 4th, 2022). In terms of volatility, the stock had a standard deviation of $2.0/share, equivalent to 9% of the current stock price.
Revenues for Q1-2022 were $98M, more than doubling last year's sales of $45M (+118%). The increase was not homogeneous across the two different fleet sectors, with revenues from crude tankers being in line with the previous year and revenues from product tankers increasing by $53M.
TCE revenues from crude tankers were positively affected by an increase of $11.3M in sales due to the extension of the Suezmax fleet (post-merger) and by the rates increase in the Panamax, Suezmax, Aframax fleet (+$2.7M). These increases were negatively offset by a $6M sales decrease due to the divestment of 4 Panamax vessels and by a $6.4M rates decline in the VLCC (Very Large Crude Carrier) segment.
Regarding TCE revenues from product tankers, the large growth is explained by the additional 44 medium-range product vessels acquired in the merger with Diamond S Shipping.
The Company generated 94% of total TCE revenues in the spot market (69% in Q1-2021) meaning that the revenue performance is heavily dependent on the macroeconomic context.
Looking at costs, total operating expenses were $107M, up 84% or $49M versus the $58M of the previous year. The largest increase is obviously in the vessel expense due to the increase in fleet size: vessel-related costs grew from $26M in Q1-2021 to $60M in Q1-2022 (+129%). D&A and G&A as well showed an increasing trend of +62% and +25%.
International Seaways reported a net loss of $13M, in line with the previous year.
Looking at the cash flow statement, one can see that International Seaways generated a negative cash flow from operations ($-20M, in line with the previous year). Cash flow from investing activities was negative at $-15M, characterized by the acquisition of new vessels (3 LNG-powered VLCCs for $37.8M) as well as disposal of older cargo ships (2 Panamaxes and 1 Handysize for a total of $24.2M).
At the end of March 2022, International Seaways has a cash position of $75M and total debt of $1.1bn, equivalent to net debt of approximately $1.0bn.
Liquidity is not an issue, since, on top of the $75M of cash, the Company also has $90M in undrawn revolving capacity leading to available liquidity of $166M. Under the unlikely assumption that the Q1-2022 FCF of $-35M will not improve in the next quarters, International Seaways would still be able to carry on its business for 1 more year without the need for refinancing.
As mentioned before, the stock is up 50% year-to-date. However, Wall Street analysts do not think that the run is over. Using Seeking Alpha "Wall St. Analysts' Rating" section, it is possible to see that out of 8 analysts, 7 have rated the stock as a Buy or Strong Buy. The average target price is $27.4/share which would offer a 24% upside from the current stock price. The most bullish analysts see the stock potentially at $35/share.
Overall, despite the Company reporting a net loss and burning cash, I feel confident in reiterating my BUY recommendation for International Seaways. The company has a large and varied fleet that provides the right flexibility to catch market opportunities. Oil inventories have dropped to 2010-2014 levels with a future demand cover lower than 2 months and, at the same time, oil demand for H2-2022 is expected to increase to about 100 million barrels per day (+3 Mbbl/d). The direct consequence is that oil tanker companies - such as International Seaways - will likely increase their turnover.
In conclusion, I believe that the recent stock price of $22.08/share can still be a good entry point.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.