Stena - Spring Cleaning
All,
Please find our unchanged analysis here.
There was a moment during the pandemic, where Stena’s fine print and legal structure had come into view. Oil had slumped and the virus was about. Never again would we need those drillships. Ferries were being replaced with Zoom. Bulk and LNG were strong, but their outlook weak. Merely the tankers served - as storage - briefly. Today of course we are in a different world and as the Swedish rental portfolio takes a back seat, Stena can point to impressive recovery in its pro-cyclical divisions. So where does that leave us?
Drilling:
- Q4 completed an impressive turnaround that had been in the making for some time. Contract coverage is a different picture today than it was in 2020.
- While competitors are slow to mobilise from dry docs, day rates have gone through the roof. Of course, that does not yet have the full impact on Carron and DrillMax, which have been on longer-term contracts, but at 100% utilisation, the division has quite the recovery to look forward to.
Shipping:
- RoRo is performing with new ships.
- LNG continues to dwindle on historic contracts but is expecting Blue Sky by June.
- Bulk is still suffering from low charter rates. Recent rates have spiked, but their pronounced Q4 effect is likely yo dwindle again.
Line:
- Passengers are back - at least during the low winter season. Whether or not 2022 can continue to track 2019 as closely as it has. In recent months remains to be seen, but in line with our expectations for a Super Summer in the Mediterranean, we think the same should hold for the Baltic and the Channel / Irish Sea.
Property and Adacturm:
- Property of course came to the rescue with the timely sale of the Dutch portfolio in 2021 - as in fairness did the settlement with Samsung Heavy. The division is now a little bit smaller than before and earnings are coming down a little bit. We lack precise reasons for this - other than the smaller scale - but the solid nature of the portfolio has been keeping us comfortable.
- Adactum’s pro-cyclical kitchen manufacturer and garden centre investments have been driving earnings in that segment, but those seem to have plated. Also in the current rate environment, we expect both sectors to slow down somewhat.
Positioning:
- We are buying back our 5% of NAV (long) CDS (note that we did not roll). The contract is trading well - if less liquid now and while the underlying are are “widening" with mere market sentiment, we’d rather not wear more of that beta.
- Going long more oil can be better done elsewhere. Stena remains too tight - if for all the right reasons.
Unless you feel strongly about Stena, we are shelving coverage of the name. Please let us know if you still care.
Please reach out to discuss,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003