It’s hard going, but Stena will make it through the end of 2017 with a profit despite the tough drilling and LNG shipping markets. It will be an uncomfortable ride for a while yet as we wait to see how successful Stena is at eking out some contracts on the drillships, but it still has considerable liquidity available and maturities over the coming two years are relatively modest.
|XS0287290737||€||BB- / B3||5.875%||Feb-19||€ 102m||105.75||0.829%||147|
|XS0495219874||€||BB- / B3||7.875%||Mar-20||€ 200m||111.00||2.853%||361|
|USW8758PAK22||$||BB- / B3||7.00%||Feb-24||$ 527m||96.25||7.776%||544|
|USL62788AA99*||$||BB / Ba3||5.75%||Mar-24||$ 350m||95.25||6.692%||436|
*Issued by Stena International SA; security is two drilling units (Stena DrillMAX and Stena Carron, both 9-10 years old) shared with a $650mn term loan. It is also guaranteed by Stena AB. All other bonds above are issued by Stena AB (holdco) and unsecured.
Nine months into the year, Stena is still holding its own in rough waters. Note that SEK was $0.1228 at the end of September.
- Ferries’ revenue was up 0.9% to SEK 9.9bn and operating profit was down 3.1% to SEK 1.4bn. Overall, volumes have grown in all markets, with the exception of the North Sea (UK/France), which were up against unusually strong prior year figures and are down 1-5%. The Baltic Sea continues to see strong double digit growth, while Scandinavia and the Irish Sea are growing 2-5%. The North Sea is the difficult region with volume down 2-6%. Stena has made up some of the lag during Q3, and EBITDA is now down SEK 88mn to SEK 2.47bn.
- Drilling – Management is not sugar coating conditions: “the slide continues” reflecting the very week market. Revenue is now down 45% to SEK 3.1bn and EBITDA is down by half to SEK 1.6bn and operating profit has fallen to a loss for the nine months of SEK 831mn versus last year’s SEK 517mn. Cost reduction initiatives continue, with the group having saved SEK 735mn (35%) in direct expenses. They are reporting “great interest” for Stena Spey in the North Sea following its current Repsol contract that is due to complete in December. That said, active contracts are fewer and far between. The Exxon contract continues well-by-well, but that is the only firm contract at this point. Management describes the market as gloomy, but reported a considerable increase in tendering activity, and for each of its vessels they’re involved in some form of tender to start contracts in the next 3-6 months. Day rates remain around opex levels in most cases. It is too early to draw conclusions, but perhaps is oil companies are looking to secure rig capacity at advantageous prices going forward.
- Shipping is suffering in the tanker division, but it looks like charter rates are carving out a bottom with more stable levels seen over the past couple of quarters and even a slight uptick in Q3. RoRo/RoPax remains solid, with stronger charter rates. After the April acquisition of the remaining 50% of Stena Weco, revenue has more than doubled to SEK 4.3bn. The EBITDA decline slowed and is now down just 18% rather than the 23% seen in 1H, coming in at SEK 671mn. Operating profit made it to SEK 25mn, barely 13% of last year’s SEK 195mn profit thanks largely to the SEK 308mn loss in the tanker segment. As for the LNG market, there is interest from gas companies for securing longer term charters and spot rate quotes have reached up to $80k per day – quite a long way from the lows of $20k per day, i.e. opex level. Stena has two vessels open from Q1 2018 that may take advantage of that. If rates remain at these higher levels, the likelihood is Stena Crystal Sky will have existing contract options taken up at the lower rates, so fuller rates may not filter through until the second half of 2018 for the business segment as a whole.
- Property and Adactum continue to perform well with increases in revenue, EBITDA and operating profits (last year’s gains in fair value on property excluded).
- Overall revenue of SEK 24.6bn was down just 1%, EBITDA of SEK 6.5bn was down 28% and operating profit was 39% lower at just under SEK 2.2bn. It is still profitable as a group, making SEK 1.1bn before tax and SEK 483mn thereafter. Total debt for the group continues to move down SEK 53.5bn, down from SEK 59.1bn a year ago. Leverage was reported at 5.0x. The group continues to generate operating cash flow – by our calculation almost SEK 6.3bn compared to SEK 5.4bn last year – providing 4.5x interest cover and allowing for SEK 1.7bn in capex and the SEK 3.0bn in debt reduction during the current year. Total liquidity from cash & equivalents, short term investments and marketable securities plus almost SEK 8.5bn of unused facilities totalled SEK 16.9bn ($2bn).
The restricted group (Ferries, Drilling and Shipping) had combined revenue of SEK 17.6bn for the nine months, down 2.3%. Operating profit fell from a SEK 1.0bn profit to a SEK 391mn loss. Adjusted EBITDA was SEK 4.8bn, down almost SEK 2bn. Total debt is down 17.5% from a year ago at SEK 31.4bn. Liquid assets are a touch lower, but that still means net debt is down to SEK 29.9bn. Operating cashflow was sound at SEK 4.5bn, covering the SEK 1.1bn interest bill with room for SEK 1.2bn capex. As a reminder, there is SEK 200mn p.a. of normal debt amortisation in 2018 and no large maturities until the 2019 bond and the 2020 bond and bank debts.
Although there are some glimmers of hope, there is still a way to go to before we see the other side of the oil market slump. Stena management doesn’t expect significant activity for drilling before the end of March, i.e. after winter on the Norwegian shelf. Developments in the LNG shipping market provide a little encouragement in what has been a drag on shipping overall. Leverage will remain extended for at least another couple of quarters. In the meantime, liquidity remains in place to draw should it be necessary. It remains a waiting game, but Stena has done a decent job of treading water in what was always going to be a difficult year.
Please contact the desk if you wish to discuss.
|SEK million||9m 30 September 2017||$||Op Profit|
|Revenue||Op Expenses||Op Profit||Op Profit||Margin||Growth|
|Gain on sale of assets||506|
|Net valuation on investment properties||188|
|Direct income from operations||9,361||1,149|
|Depreciation & amortisation||4,339|
|PROFIT BEFORE TAX||1,112||136|