Stena - Nothing
All,
Please refer to our unchanged analysis here. We will be updating in the near future.
As cargo revenue once again outperformed our model, the company remains flush with liquidity. But we can see nothing that would suggest any systematic approach to manage the shape of its debt pile in the way a distressed investor would deem reasonable, or that would suggest the company is at all focussed on its debt.
Buy-backs:
- Yes, the company is buying back SA unsecured bonds, where the 25s have the RP basket language, but that’s only after buying back some of the 24s in June.
- The cash to buy back those 25s is raised via 75% g’teed export credit line, which is cheaper, but only another unsecured credit line at SA level.
Fundamentals:
- Stena Line: Passenger levels are improving only slowly, but freight rates, in particular in connection with Brexit and direct Ireland to France routes are at least temporarily propping up sales and EBITDA to well above model. Freight is the main source of outperformance in the restricted group.
- Stena Drilling: After a stronger than expected Q1, Q2 was in line with model, i.e. EBITDA was approx. SEK 130m negative. We don’t see that turning positive before H222, but all rigs are under contract and working, even if the Don rig’s contract is running out as soon as September.
- Shipping: Overall remains stable at a weak level. Bulk had a sensational 2020 due to oil inventory build early in the year, but since world oil demand has not yet caught up with historical levels and charter rates remain low. LNG remains stable and well contracted, although the quarterly EBITDA was impacted by some periodic surveys for which vessels were laid up, but management asserts that this is finished. RoRo meanwhile remains stable but is expecting five newly built deliveries by 2025, which will have to be up-front financed with approx. 10% cash equity by the company. The company has ordered some 12 e-Flexers in total, five of which are to be taken by Stena Line (more here).
- The sale of the Dutch portfolio, while doing wonders for liquidity, hardly made a dent in the total balance of the property portfolio, which continues to produce valuation gains and is now valued again above SEK 40bn and leverage of 41%, only marginally higher than before.
- Adactum: Remains somewhat opaque to us, but continues to sell stakes in its holdings at strong profit, supporting the group while its main assets are suffering. Also, its home-focused chains of kitchen and garden centres have performed extremely well in H1.
e-Flex orders:
- Stena will be financing the purchase of these ships externally, with anything from green solutions (where hybrid-battery powered) to private or bank financing. However, the company expects to have to pay some 10% up-front in cash. For some 10 remaining vessels, therefore, rumoured to be worth $135m each, that would sap SEK 1.15bn from the balance sheet (over several years).
Positioning:
We remain long via CDS for 6% of NAV. We chose the CDS back in Early April, on the idea the company would clear the bonds from the SA, but that does not seem to be on Management’s mind. While we’ve made a little bit of money in the position, we’d admittedly have been better off in the bonds - so far.
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003