Stena - afloat in liquidity
All,
Please find our significantly updated model here.
Even though recovery in Offshore Drilling is coming on more slowly than we had estimated, overall operations are in line with our projections. Very positive, however, is that Stena is now significantly more liquid than we had originally modelled, mostly due to its strong WC performance in Q4, its 100% lease financing of incremental CapEx and in particular the recovery of monies from Samsung Heavy as well as the sale of property in the Netherlands.
Fundamentals:
- Ferry Operations: In particular the Freight business has seen stronger revenues in Q4 than we had modelled (down only 3% YoY) and on slightly lower cost following redundancies and two retired lines. Also, we had assumed another SEK 100m charge for further redundancies, which turned out to be only SEK 28m. Meanwhile passenger volumes remain down 55%.
- Offshore Drilling is stabilising in line with model assumptions. Day rates are approaching $200k and the order book is visibly filling, but Q4 OpEx and indirect costs remained surprisingly high.
- Shipping: Both, RoRo and Tankers registered higher revenues, but also disproportionately higher costs, which the company attributes to delays for loading/unloading and crew changes due to the pandemic.
- Property did not show much variation.
- Adactum has had a good quarter as anticipated, and crucially reduced its cost base.
P&L
While Q4 Consolidated Revenue ended up higher than our forecast, Pre-IFRS EBITDA was spot on, as better than expected revenues from Ferry Operations were offset by higher than expected costs in the Drilling segment.
CF:
- The bigger changes have taken place in the cashflow.
- The company collected an unprecedented inflow of WC of SEK 1bn, mostly from collecting on receivables and deferred revenue.
- Also Stena UG generated a SEK 200m cash tax inflow, and had not recognised certain exchange losses of SEK450m.
- CapEx was higher than we thought, and in line with guidance. We had assumed the company would slow down its rate of CapEx to accommodate for the pandemic, but we’ve been wrong. However, new vessel orders are now fully paid for with leases, preventing the incremental outflow of SEK 700m in Q4.
Q1 Strong liquidity:
- The numbers are not yet out, but Stena have received payment from Samsung Heavy of $411m in connection with the cancelled order of Stena MidMax. This together with sales of real estate should give the company significant liquidity room, which it intends to use to pay down its RCFs.
- Stena also sold a portion of its international Real Estate holdings (mostly Netherlands) for net proceeds (after retiring probably 40% leverage) of SEK 2.3bn to the company.
- We understand the generated cash - even though related to orders placed by the RG - is now lying outside the RG, presumably having paid back some of the enormous intercompany loans from the UG, and will only be drip-fed into the RG as required. This corresponds with our understanding and modelling of the financing structure and incentives.
Drilling Contract Book for 2021 filling up. Graphs from Q3 and Q4 2020:
We remain long via 5y CDS for 6% of NAV with the thesis that the contract tightens towards the end of this year as NCF turns positive with the turnaround of the Drilling Division. We are looking to earn 10% for the year.
Please reach out to discuss,
Wolfgang
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E: wfelix@sarria.co.uk
T: +44 203 744 7003