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15 Jul

Multiple Catalysts To Drive EURN Higher

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Euronav NV owns, operates, and manages a fleet of vessels for the ocean transportation and storage of crude oil and petroleum products worldwide. The company operates through two segments, Tankers; and Floating Production, Storage, and Offloading Operations. As of March 24, 2016, it owned and operated a fleet of 55 vessels, including 30 very large crude carriers, 1 ultra large crude carrier, 22 Suezmax vessels, and 2 floating, storage, and offloading vessels. The company was incorporated in 2003 and is headquartered in Antwerp, Belgium.

This tip is a combination of multiple catalysts that could positively influence the stock price: the bounce in oil prices and the economical growth that could increases the demand for vessels, the USD strengthening against the EURO and the company financial policies on share buyback and dividend.

As Euronav rents tankers, its result is heavily depending on the rental price of long term chartering (1 year) and spot chartering (for shipping one particular cargo). These rental prices fluctuate as the balance between demand and supply over the world changes and shipping routes change. For details on the influences and why the oil price crash increased the rental price I refer to http://on.ft.com/29DNGzg .. at least you should know that it costs 60.000USD to rent a tanker per day!

Rationale:

EuroNav is quoted on the Euronext Brussels and on the NYSE. Both share prices, taking into account the currency rate of EUR/USD, should always be in line as arbitrage trading is automatically being performed by algorithms. However, both markets are not always open at the same time. As a consequence you will see gaps on the daily charts as prices are aligned when markets open again.

The first support for the price will come from the EUR/USD as current believe is that USD will become stronger in the short term (Brexit uncertainty, Portugal/Spain balance issues, Italian banks bad dept).

In practice this means that when taking a long position, and no price movement on any market happens (NYSE nor Brussels) but only the Dollar becomes stronger (EUR/USD goes lower) would imply that the stock price would increase on the NYSE.

The second support comes from the share buyback program of the company. In the beginning of this month the following news was release by the company:

“ANTWERP, Belgium, 1 July 2016 – Euronav NV (NYSE: EURN & Euronext: EURN) (“Euronav” or the “Company”) today announces that the Company has purchased 192,415 of its own shares on Euronext Brussels for an aggregate price of EUR 1,528,211. 

Transaction date Quantity Average price Lowest price Highest price Total price
24 June 2016 75,270 7.8714 EUR 7.714 EUR 8.000 EUR 592,480.28 EUR
27 June 2016 117,145 7.9878 EUR 7.960 EUR 8.000 EUR 935,730.83 EUR

Following these transactions, the Company now owns 1,042,415 own shares (0.65% of the total outstanding shares).

Euronav may continue to buy back its own shares opportunistically. The extent to which it does and the timing of these purchases, will depend upon a variety of factors, including market conditions, regulatory requirements and other corporate considerations.”

This tends to believe that the company finds 8 EUR (or 8.86 USD) the upper bound of a cheap valuation. The last paragraph also gives away that future price support can be found around this 8.86$ range as the buy back program could kick in again.

Trade green!

Jason Bond

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