Torm PLC: Shares of 18.7%-Yielder Trumping Broader Market
October 21, 2024
Bullish TRMD Stock Has 50% Upside
There are a lot of reasons to be bullish on today’s top income pick, Torm PLC (NASDAQ:TRMD).
Despite the inherent volatility of oil and gas prices and the move toward greener, more renewable energy sources, the oil and gas industry remains robust. In fact, oil production and demand are hitting record levels.
The Organization of the Petroleum Exporting Countries (OPEC) may be a little biased when it comes to the future of oil, but it maintains that global oil demand will continue to grow into the middle of the century. (Source: “OPEC Doubles Down on Outlook for Oil Demand Growth to 2050,” Financial Post, September 24, 2024.)
World oil consumption is expected to increase by 11.1 million barrels a day to average 113.3 million per day by 2030. That forecast is up 1.3 million a day more than last year’s outlook, which was itself increased from the previous year.
The longer-term outlook is equally as bullish. From 2024 through 2050, oil consumption is projected to increase by 17.9 million barrels per day, or 18%, to 120.1 million barrels per day.
Not everyone lives in an oil-rich country with easy access to oil and gas. And that’s why midstream shipping companies like Torm PLC will continue to be in huge demand.
About Torm PLC
Torm is a leading pure-play product tanker company with a fleet of 90 vessels designed to be configured to move gasoline, naphtha, diesel, and jet fuel from refiners to their customers. (Source: “About,” Torm PLC, last accessed October 8, 2024.)
Ranging in size from 45,000 to 115,000 in dead weight tonnage, its fleet includes Long Range 1, Long Range 2, and Medium Range vessel classes.
Long Range 1 tankers are designed to carry both refined products and crude oil. Long Range 2 tankers are generally used on long trade routes, such as carrying diesel from the eastern hemisphere into the Atlantic. A typical trade for Medium Range vessels would be taking gasoline from Europe to the U.S.
Continued Strong Performance
Torm continues to report strong quarterly results, building on the momentum from 2023. During the second quarter, TORM’s time charter equivalent earnings (TCE) increased 5.8% year over year to $325.9 million. TORM reported daily TCE rates of $42,057 compared to $36,360 in the second quarter of last year. (Source: “TORM plc Q2/2024 Results, Dividend Distribution, and Financial Outlook 2024,” Torm PLC, August 15, 2024.)
Torm’s realized adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $251.1 million, up 25.6% over the $199.8 million recorded in the same period in the prior year. Adjusted net profit rallied approximately 31% to $194.2 million.
According to management, the product tanker market remained at strong levels during the quarter, mainly fueled by widespread rerouting due to continued Houthi attacks against commercial vehicles in the Middle East. On top of that, trade volumes continue to grow on an annual basis.
Torm PLC’s 2024 Outlook
Looking ahead, based on strong earnings from the first half of the year, Torm narrowed its full-year guidance by increasing the low end of the guidance range, so it now expects to report:
- TCE earnings of $1.15 billion to $1.35 billion, up from previous guidance of $1.1 billion to $1.35 billion; in 2023, Torm reported TCE earnings of $1.08 billion
- EBITDA are expected to be in the range of $850.0 million to $1.05 billion, up from previous guidance of $800.0 million to $1.05 billion; the company reported full-year 2023 EBITDA of $848.0 million
Quarterly Distribution Increased by 20%
Thanks to its strong cash generation, Torm is able to provide investors with a big variable distribution.
In the company’s second-quarter earnings release, Jacob Meldgaard, CEO noted, “Our strong performance continued in the second quarter of 2024, building on the positive momentum from previous quarters.”
Adding, “We will once again distribute significant dividends to our shareholders while also selectively expanding our fleet, further positioning us to capitalize on strong market fundamentals.”
To that end, Torm’s board approved a second-quarter dividend of $1.80 per share, or $6.12 on an annual basis, for a forward yield of 18.7%. The $1.80-per-share payout represents a 20% increase over the $1.50 per share paid out in the first quarter. (Source: “TRMD / Dividend History,” Nasdaq, last accessed October 8, 2024.)
Because the company’s dividend is tied to profitability, it will fluctuate from quarter to quarter. In June, it paid out $1.36 per share; in December 2023, the distribution was $1.46 per share; and in May 2023, it paid out $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, the company resumed it in August 2022, and hasn’t missed a payment since then.
TRMD Stock Thumping S&P 500
Typically, an ultra-high-yield dividend is tied to a lower share price. That’s because yield and share price have an inverse relationship. That isn’t the case with TRMD stock though. On June 26, the stock hit a new record high of $38.85.
TRMD has pulled back temporarily from that record level to around $32.18 per share. Even with a little profit-taking, the stock is still doing better than the broader market, now up:
- 20% year to date
- 42% year over year
Wall Street expects Trom PLC stock to hit fresh highs over the coming quarters, with analysts providing a 12-month share price target range of $44.73 to $48.00 per share. This points to potential upside of approximately 40% to 50%.
Chart courtesy of StockCharts.com
The Lowdown on Torm PLC
Torm PLC is a pure-play product tanker company that continues to report strong financial results. It upped its quarterly dividend in both the first and second quarters and provided solid guidance, raising the low end of its 2024 guidance range for TCE earnings and EBITDA.
Thanks to its growing fleet, rising freight costs, and crude cargo growth, the outlook for Torm PLC and its dividend remains excellent.
