Teekay Tankers: New Dividend Supports Bullish Narrative (NYSE:TNK)

Introduction

The Bermuda-based Teekay Tankers Ltd. (NYSE:TNK) released its first-quarter 2023 results on May 11, 2023.

Important note: This article is an update of my article published on December 12, 2022. I have been following TNK on Seeking Alpha since 2021.

1 – 1Q23 Results Snapshot – Solid Quarter

Teekay Tankers Ltd. posted an adjusted quarterly income of $5.13 per share or $174.92 million. The results were better than expected due to the higher spot tanker. The net income was $169.37 million compared to a loss of $13.94 million a year ago. In the press release:

Mid-size crude tanker spot rates in the first quarter of 2023 were the highest ever recorded for the first quarter of a year. Record high crude oil exports from the U.S. Gulf, an increase in long-haul movements from the Atlantic to the Pacific spurred by rising Chinese crude oil imports, and an increase in Russian crude oil exports, which are now moving almost exclusively on long-haul voyages to Asia, were the main drivers of strong spot tanker rates. Mid-size tanker spot rates have remained firm at the start of the second quarter of 2023.

However, a critical piece of news for shareholders is that the company is now paying a fixed quarterly dividend of $0.25 per share, and the Board has also approved a special dividend of $1.00 per share.

Finally, TNK has established a $100 million share repurchase program.

CEO Kevin Mackay said in the conference call:

We reported our highest ever quarterly adjusted net income with nearly $175 million or $5.13 per share, an increase from a record fourth quarter of 2022 adjusted net income of approximately $148 million or $4.33 per share. Our strong results have enabled us to reduce our net debt by almost 50% since last quarter to $182 million.

2 – Stock Performance

As shown below, TNK fared very well in 2022 and outperformed the industry. TNK is up 162% on a one-year basis. The dividend payment was helping.

3 – Investment Thesis

The investment thesis for TNK is always a strenuous exercise due to the inherent extreme volatility of the Tankers industry. However, looking at the performance of a few tanker companies, we can see that the industry has done very well since the beginning of 2023 and continue to show potential for more.

CEO Kevin Mackay said in the conference call:

For mid-sized tankers, spot rates during the first quarter of 2023 were the highest ever of the first quarter of a year and remained firm albeit volatile in the early part of the second quarter. We’ve recently seen record high U.S. crude oil exports and crude volumes out of Russia remain strong, adding significant support to mid-sized tankers.

The company indicated that the average mid-sized spot tanker rates were TNK’s highest-ever first-quarter spot tanker rates of over $60k per day.

The second quarter-to-date rates are still improving, as shown in the chart below:

However, TNK is highly specialized, raising stock volatility and requiring a trading strategy adapted to the uncertainty challenges.

In short, the 2023 tankers market looks solid for Teekay Tankers Ltd., but the stock is reaching a valuation limit that will be difficult to overcome unless the Q2 2023 results are exceptional. However, the stock is getting strong support with the new dividend and buyback policy.

Thus, I recommend short-term trading LIFO and taking advantage of the wild swings while keeping a medium long-term position for a final higher payday or enjoying a solid dividend.

TNK – The Raw Numbers: First Quarter Of 2023 And Financials History

Teekay Tankers	1Q22	2Q22	3Q22	4Q22	1Q23
Total Revenues in $ Million	174.02	242.39	279.39	367.32	394.66
Net Income in $ Million	-13.94	28.55	68.05	146.43	169.37
EBITDA $ Million	18Cash	61.86	102.60	181.45	212.84
EPS diluted in $/share	-0.41	0.83	1.98	4.25	4.90
Operating cash flow in $ Million	-14.67	16.52	46.32	145.09	167.32
CapEx in $ Million	4.07	3.34	4.10	3.92	0.44
Free Cash Flow in $ Million	-18.74	13.18	42.22	141.17	166.88
Total Cash $ Million	18.37	66.27	78.01	180.51	169.75
Total Debt (including current) + obligations/liabilities In $ Million	670.0	660.7	629.4	622.7	506.8
Shares Outstanding (Diluted) in Million	33.91	34.20	34.38	34.49	34.54

Click to enlarge

Source: Teekay Tankers release.

Note: More data are available to subscribers only.

Analysis: Revenues, Earnings Details, Free Cash Flow

1 – Operating revenues were $394.66 million in 1Q23

Teekay Tankers announced a total adjusted net income of $174.92 million, or $5.13 per share, during the first quarter, increasing from a loss of $14.00 million, or $0.41 per share in the first quarter of 2022. Revenues were $394.66 million in 1Q23, up from $174.02 million in 1Q22.

In the press release:

primarily due to higher average spot tanker rates and stronger results from full service lightering, the expiration of certain fixed-rate time charter-out contracts between the second quarter of 2022 and the first quarter of 2023 that subsequently earned higher spot rates, as well as the commencement of five charter-in contracts between the third quarter of 2022 and the first quarter of 2023.

2 – Free cash flow was $166.88 million in 1Q23

Note: Free cash flow is cash from operations minus CapEx. The company has a different way of calculating the FCF, indicating $193.8 million in 1Q23.

Trailing 12-month free cash flow was $363.45 million, with a quarterly free cash flow of $166.88 million in 1Q23. Free cash flow improved significantly this quarter from a loss of $18.74 million in 1Q22.

3 – Debt Analysis – Net debt is down to $181.87 million.

Net debt was 181.87 million in 1Q23, including current and long-term obligations related to finance lease liabilities.

As of March 31, 2023, the company had total pro forma liquidity of $332.3 million. In the chart, I have indicated the debt, including the obligations and finance lease liabilities long-term and current (page 11 of the press release).

As at March 31, 2023, the Company had total liquidity of $332.3 million (comprised of $169.8 million in cash and cash equivalents and $162.5 million in undrawn capacity from its credit facilities), compared to total liquidity of $343.0 million as at December 31, 2022.

Technical Analysis And Commentary

TNK forms a descending channel pattern with resistance at $44 and support at $36.5.

Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. The descending channel pattern is often followed by higher prices, but only after an upside penetration of the upper trend line.

This quarter, the strategy changed slightly after the company started paying dividends, making a long-term investment more appealing.

The basic strategy is to take profits between $42 and $45 with possible higher resistance at $47 and accumulate again between $37 and $36 with potential lower support at $32.3.

The short-term trading strategy is to trade LIFO about 55%-60% of your position and keep a medium core long-term amount for a much higher payday that could be in the $50s. However, I think the stock is now showing a high valuation.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.