High Tide: Workboat Stocks Are Doing Just Fine
(Article originally published in Sept/Oct 2024 edition.)
It's time for our annual review of workboat stocks and companies that make their living off Big Oil. While not as gangbusters as a year ago, these companies are enjoying steady profits and benefiting from a rosy outlook.
The ups and downs of oil prices are nothing new. A year ago oil was trading in the mid-to-high $80s and nearly touched $100/barrel. Now it's around $70. It can go to $60 and below, most experts say, and still produce plenty of profits for producers and investors alike. A low price, moreover, is like a floor on future expectations. Can't go much lower, and lots of upside.
Workboat Stocks
Any discussion of the international workboat market begins with Tidewater (TDW), the industry leader and one of the few companies that are publicly traded. Since emerging from bankruptcy in 2017, it's been on a buying spree – first Gulfmark Offshore in 2018, then Swire Pacific in 2022 and, most recently, Solstad Offshore last year.
The acquisitions gave TDW leading positions in most major markets including the U.S. Gulf, North Sea, West Africa, Middle East and Southeast Asia. The company's fleet of more than 200 vessels spans the globe, prompting someone to quip that "The sun never sets on Tidewater." And these are not just any vessels. TDW has meticulously "high-graded" its fleet by focusing on quality assets, large vessels routinely in high demand and value-accretive acquisitions.
The "value-accretive" acquisitions have slowed recently as the company takes a breather from its buying spree and focuses on digesting the proceeds. Meanwhile, it's generating lots of cash, paying down debt and buying back shares, all of which strengthens the balance sheet, benefits shareholders and provides a solid base for continued gains. Gross margins at TDW are approaching an impressive 50 percent, and both utilization and day rates remain high.
Commenting on its most recent results, for the quarter ended June 30, President & CEO Quintin Kneen had this to say: "Revenue in the second quarter came in at $339.2 million with a gross margin of 47.7 percent. On a global basis, revenue, gross margin and day rates were all up from the previous quarter; both absolute gross margin dollars and day rate marked a new record for Tidewater and we generated the highest gross margin percentage in fifteen years."
The stock is up a mere eight percent this year at around $75, but the future looks bright.
"We remain optimistic about the outlook for 2025," notes Kneen, "as the observable supply and demand factors driving the offshore vessel industry remain highly constructive, which should allow us to maintain the pace of day rate increases that we have achieved over the past year, combined with a substantial increase in available vessel days as the heaviest drydock schedule in 2024 rolls into the lightest drydock schedule in 2025, naturally lifting vessel utilization."
That's what I call hitting on all cylinders. Roll Tide!
Coastal & Inland Waterways
One of the biggest winners this year among companies that transport oil and its byproducts is Houston-based Kirby Corporation (KEX), a longtime favorite of this writer. Its stock is up an impressive 57 percent year to date, and its two major business segments – Marine Transportation and Distribution & Services – are thriving.
Kirby is the largest U.S. operator of both inland tank barges and coastal tug-barge units (ATBs). These vessels are vital to the nation's economic health and transport petrochemicals, refined products and black oil along the inland waterways (mainly the Mississippi and its tributaries) and all three U.S. coasts, including Alaska. Having just returned from a cruise down the lower Mississippi (more about that in a future edition), we saw many a Kirby barge tow making its way up or down river.
Like the offshore sector, which has Tidewater, the inland tug-and-barge market is highly fragmented with only one major public company – Kirby. Almost all the rest are privately held, so there are limited opportunities for investors. But you can do a lot with TDW and KEX.
"Overall, solid execution and favorable market conditions led to a strong first half of the year for us," stated Kirby's President & CEO, David Grzebinski, in a second-quarter earnings release, "and we have a favorable outlook for the remainder of the year. We see growth coming in at the higher end of our previously guided range, our balance sheet is strong and we expect to generate significant free cash flow this year. We see favorable markets continuing and expect our businesses will produce strong financial results as we move through the remainder of this year and into next year."
Sounds a lot like TDW's outlook. And like TDW, KEX also has an aggressive stock buyback program and plenty of cash to continue reinvesting in its own shares, further benefiting shareholders.
Dividend Play
Neither TDW nor KEX pays a dividend, but International Seaways (INSW) does. And it's a whopper.
A spinoff from OSG (Overseas Shipholding Group) back in 2016, New York-based INSW is a major player in the international tanker market, transporting both crude oil and petroleum products. It currently owns and operates a fleet of 82 vessels including 13 VLCCs, 13 Suezmaxes, five Aframaxes/LR2s, 13 LR1s (including six newbuildings) and 38 MR tankers.
Like the entire tanker sector, INSW is thriving. Rates are up, ton-miles are growing, and demand is strong. The supply chain disruptions caused by the war in Ukraine and the Red Sea crisis have greatly benefited the industry, as has a limited supply of newbuilds.
While INSW's stock is up barely eight percent this year, its dividend payouts currently yield 12 percent, and it's committed to keeping them high. So that's a total return of 20 percent, which is real money in anyone's book.
"We maintained strong momentum in the second quarter," said Lois Zabrocky, INSW's President & CEO, "drawing on Seaway's substantial cash flows to continue to execute the Company's balanced capital allocation strategy for the benefit of shareholders. We continued to renew our MR fleet, one of the strongest earning classes, with the acquisition of six modern vessels and sales of older tonnage. At the same time, we increased our liquidity to position the Company for future growth while returning a 12 percent yield to shareholders."
Looking ahead, she added, "We believe markets will continue to show strength based on sustained attractive supply and demand fundamentals, highlighted by positive oil demand trends, higher ton-mile demand, and limited shipyard capacity for new orders, which will inhibit any significant volume of tanker deliveries for the foreseeable future. We expect to take further advantage of these dynamics moving forward, as we focus on building our track record of opportunistic investment in the fleet and compelling shareholder returns."
Like TDW and KEX, INSW also has an ongoing share buyback program.
So there you have it. It's been a good year for workboat stocks and for those companies involved in the production and transportation of crude oil and its many byproducts. And it should get better, even if oil prices remain low.
So let the good times roll!
Jack O'Connell is Senior Editor of this magazine, former maritime executive, and private investor who may own shares in some of the companies mentioned in his columns. The views expressed are his and his alone and are not in any way to be construed as investment advice.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.
Investors Acquire Hurtigruten to Recapitalize Cruise and Coastal Businesses
Hurtigruten Group which is one of the longest-surviving Norwegian shipping companies reports it has reached an agreement with existing shareholders to take ownership of its businesses and recapitalize the shipping and expedition cruise operations. The company which was founded in 1893 has transported passengers, cargo, vehicles, and tourists on the Norwegian coast and more recently expanded into expedition cruising to destinations including Antarctica.
The company has struggled to rebound from the pandemic, a series of missteps, and increased competition. Norway split the coastal business and awarded a competing contract to Havila which launched four newbuild cruise ships for the service. According to reports from Bloomberg, the traditional coastal business saw a decline in revenues while Hurtigruten’s expedition business has been operating at a loss. Bloomberg estimates investors provided nearly $400 million in shareholder debt to the group since 2021.
The group had been pursuing a business plan since 2021 that called for the eventual separation of the coastal and expedition businesses into two standalone companies. It reports the current transaction, expected to be completed in January 2025, will complete the process of separating the two businesses.
TDR Capital, a London-based private equity firm has been an investor in the business since December 2014. Among the existing shareholders, Arini Capital Management, AlbaCore Capital, and Barings will lead the new ownership of Hurtigruten. Arini and Cyrus Capital Partners will be the lead shareholders of the expedition cruise company.
Under the terms of the new agreement, Hurtigruten will receive over €500 million ($528 million) in new capital to support the businesses and growth in the operations. The monies will be split approximately with €110 ($116 million) in new long-term funding to Hurtigruten for the coastal operations. The expedition company, now known as HX, will receive approximately €140 million (US$148 million).
The transaction will also significantly reduce outstanding debt by over €1 billion. Hurtigruten reports it will result in a remaining debt outstanding of approximately €400 million. Maturities will also be extended to at least 2030.
“The change in ownership has no practical implications for Hurtigruten’s customer offering, business partners, or daily operations,” the company emphasized in announcing the agreements. Hurtigruten, they noted will continue as a standalone company headquartered in Oslo and will own and operate 10 ships under the Norwegian flag. HX, headquartered in London, operates five expedition cruise ships to over 250 destinations.
Hurtigruten said that it is seeing strong demand for its product. They reported that 2025 bookings are 24 percent higher year-to-date compared to last year for 2024. The company said it is poised for further acceleration of its growth in 2026.
The company has invested in upgrades to its fleet including the operation of four hybrid vessels in the coastal service and the elimination of heavy fuel oil. The group has also been working on an innovative design incorporating sails and solar to become possibly the world’s first net-zero cruise ship.
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