Torm PLC: 147% Upside Potential with Shares of 29.8%-Yielder?
January 3, 2025
Beaten-Down Torm PLC Declares $1.20 Quarterly Dividend
What a difference six months has made for the oil and gas midstream (shipping) industry.
Back in July 2024, shares of Torm PLC (NASDAQ:TRMD) hit a new record high of $40.47, putting TRMD stock up 44% year to date and 112% on an annual basis. That’s total shareholder return and includes reinvested dividends. Had a shareholder taken the dividends in cash, their returns would slip to 38% and 77%, respectively.
It’s been a different story since then. On the day of this writing (December 11), TRMD is down 40.6%. It’s also down 24.3% year to date and 15% on an annual basis.
What happened?
Torm continues to report solid quarterly results, building on the momentum from 2023.
During the second quarter, its time charter equivalent (TCE) earnings increased 5.8% year over year to $325.9 million. Despite seasonality, third-quarter TCE earnings increased 7.7% on an annual basis to $263.4 million.
For full year 2024, Torm slightly lowered its TCE earnings guidance to $1.11 billion–$11.6 billion, down from $1.15 billion–$1.35 billion. Despite the lowered guidance, the company is clearly bullish on the broader crude oil industry.
During the third quarter, Torm entered an agreement to acquire eight secondhand Medium Range vessels and took delivery of the first three of them. During the fourth quarter, the company has taken delivery of an additional three vessels, with two more expected to be delivered before the end of the year.
After the deliveries are completed, Torm’s pure-play crude fleet size will increase to 96 vessels. This makes it one of the world’s largest owners and operators of product tankers transporting refined oil products and chemicals. (Source: “About,” Torm PLC, last accessed December 11, 2024.)
TRMD stock has been hit by a number of factors. In early October, U.S. port workers and operators reached a deal to suspend their strike. It only last three days. Analysts were expecting the strike to last a lot longer, which would have increased the routes for some U.S. port deliveries and freight rates.
Marine stocks took a big hit on the news. Investors hoping for a short-term rebound in freight charges, which were already in a bit of a downtrend, sold as the strike ended, sending marine shipping stocks considerably lower.
On the plus side, the strike is only suspended until January 15 to allow time to negotiate a new contract. Things could change.
At the same time, shipping rates and midstream shipping stocks are facing additional headwinds on lackluster global demand. And oil prices are not benefitting from geopolitical risk like they normally would.
However, there are more than enough reasons to remain robust on oil and gas and the midstream industry.
The oil and gas industry remains robust, with oil production and demand hitting record levels.
Global demand for oil is growing on an annual basis, plus it looks like the Organization of the Petroleum Exporting Countries Plus (OPEC+) will extend its production cuts well into 2025. Growth in China will also come back eventually.
Oil giant ExxonMobil Corp isn’t phased. In fact, it recently announced plans to increase oil production by 18% by 2030, with production in the Permian Basin to more than triple to 2.3 million barrels per day (bpd) by 2030 and pump 1.3 million bpd from its oil-rich Guyana operations. (Source: “ExxonMobil announces plans to 2030 that build on its unique advantages,” ExxonMobil, December 11, 2024.)
Crude Oil Tanker Outlook
In 2024, the midstream oil and gas tanker industry saw higher time charter rates, newbuilding prices, and secondhand ship prices than last year.
What does the market hold for the crude tanker market in 2025?
The ratio of ships that are forced to avoid the Red Sea and Suez Canal and instead take longer, more expensive journeys will mirror that of 2024.
That said, should shipping routes return to normal earlier than expected, the crude tanker market could experience some weakness. However, as we have seen with the Red Sea and Suez Canal, issues can come out of the blue and disrupt the entire industry.
Analysts think market conditions will weaken in 2026. The assumption is that shipping routes will return to normal, with vessels taking shorter sailing routes. Again, that assumes that ships can return to the Red Sea and Suez Canal. Should that not happen, or should a Black Swan event upend the industry, all bets are off. (Source: “Tanker Shipping Market Overview & Outlook November 2024,” BIMCO, November 28, 2024.)
Torm PLC Reports Solid Q3
During the third quarter, Torm’s TCE earnings increased 7.7% on an annual basis to $263.4 million. Daily TCE rates were up slightly at $33,722, compared to $33,010 per day in the same period last year. (Source: “TORM plc Q3/2024 Results, Dividend Distribution, and Financial Outlook 2024,” Torm PLC, November 7, 2024.)
Of particular note, during the third quarter of 2024, Torm’s ton-mile demand related to clean petroleum products grew by 12% on an annual basis. But, during the quarter around 50 of the company’s crude tankers went through maintenance to transport clean petroleum products. This, coupled with the third quarter’s seasonality, led to TCE rates significantly subsiding compared to the first half of the quarter.
Torm realized adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $190.9 million, up from $186.6 million in the same period last year. Net profit for the third quarter was up five percent at $130.7 million.
Commenting on the third-quarter results, Jacob Meldgaard, Torm’s chief executive officer, said, “Our performance this quarter remains strong, with fleet-wide freight rates slightly above last year’s levels. Despite the expected impact of seasonality, we continued to deliver solid results in the third quarter.”
Torm’s 2024 Outlook
As of November 4, which was just before it announced its third-quarter results, Torm PLC had covered 52% of its fourth-quarter earnings days at $29,044, while 87% of the 2024 earning days were covered at $38,372 per day.
Based on the earnings realized in the first nine months of the year, as well as the coverage for the remaining part of the year, Torm adjusted its full-year guidance for 2024. It now expects TCE earnings to be $1.11 billion to $1.16 billion.
EBITDA is expected to come in at $810 million to $860 million, down from previous guidance of $850 million to $1.05 million.
Third-Quarter Dividend of $1.20 Per Share
Thanks to its strong cash generation Torm is able to provide investors with a reliable, variable distribution.
For the third quarter, the company’s board declared a dividend of $1.20 per share, or $5.86 per share on an annual basis, for a big forward dividend of 29.54%. (Source: “Distribution,” Torm PLC, last accessed December 11, 2024.)
Because the company’s dividend is tied to profitability, it will fluctuate from quarter to quarter. In September, Torm paid out $1.80 per share; in June, it paid out $1.50 per share. The payout can fluctuate wildly, too. In April 2023, the company paid a quarterly dividend of $2.59 per share.
As a point of interest, Torm initiated its dividend policy during the opening days of the 2020 health crisis. Suffice it to say, the financial windfall did not last long, with the board suspending the payout in August 2020. However, dividends were resumed in August 2022, and the company hasn’t missed a payment since then.
147% Upside Potential with TRMD Stock?
Torm PLC’s big dividend is a result of its depressed share price. As noted above, TRMD stock is down 24.3% year to date and 15% on an annual basis.
Wall Street expects TRMD to turn the tide over the coming quarters though, with analysts providing a 12-month share price target range of $32.00 to $48.00 per share. This points to potential gains in the range of 65% to 147%.
For technical traders, TRMD stock has found some support at $19.63 and resistance at $33.73. For long positions, the stop price is $18.47.
Chart courtesy of StockCharts.com
The Lowdown on Torm PLC
Torm PLC is a pure-play product tanker company that continues to report solid financial results. It’s growing its fleet and paid a $1.20 dividend in the third quarter. Torm’s share price has taken a hit since early October, but TRMD is trading at a tested support level.
Wall Street is bullish on its outlook over the next 12 months. And that has to be good news for shareholders and the 236 institutional holders that have a 65.29% stake in TORM’s outstanding shares.
The biggest holder is Oaktree Capital Management LP, with 40.58 million shares, for a 42.42% stake. Acadian Asset Management LLP is a distant second with 2.4 million shares, for a 2.51% stake. (Source: “TORM plc (TRMD),” Yahoo! Finance, last accessed December 11, 2024.)
