Why invest in tankers now could be a good idea? with Mariusz Skonieczny
Historically Tankers have been a terrible business… but something may be changing, and fast.
stng – Scorpio Tankers Inc
tnk – Teekay Tankers Ltd
eurn – Euronav NV
lpg – Dorian LPG Ltd
dht – DHT Holdings Inc
Transcript by: Arianne Elnar
27) Why invest in tankers now with Mariusz Skonieczny
Ney Torres: [00:00:00] Today’s episode is going to be very short and sweet about why should we be looking at tankers as an investment. Don’t forget to do your own due diligence. This is a continuation from the last episode with Mr. Skonieczny. I was practicing his last name. So I don’t get it wrong this time.[00:00:23] Unknown Speaker: [00:00:23] Welcome to Financially Free Podcast with your host, Ney Torres. One of the reasons Ney could retire when he was 25 years old is because he was coached by the best and now through this podcast so can you. [00:00:35] Ney Torres: [00:00:35] Let’s talk about tankers today. Tankers seems to be something that at the beginning, wasn’t that interesting because it’s been such a lousy business for probably decades. Why do you like tankers? [00:00:47] Mariusz Skonienczny: [00:00:47] Because everyone else hates them. [00:00:49] Ney Torres: [00:00:49] Good answer. [00:00:50] Mariusz Skonienczny: [00:00:50] Well, the tankers. Yes, you’re right. It’s when you reading about what constitutes a good business. Business with a mote, business with a brand. Tankers are not any of that. They are a commodity. So what’s interesting about the tankers is that they are a very cyclical business and they go through periods where they do really, really bad, and they go the periods that they do really, really, really, really good. And the last time there was a Op Cycle and the tankers was between 2003 and 2008 and during that time, investors made incredible amounts of money if they bought it close to the bottom. But when the good times are here, the industry tends to overbuild order new ships. And then the demand for tankers gets out of whack the supply of tankers and that’s exactly what happened between 2003 and 2008. The order bulk reached as much as 50%. So as a result of this, along with the 2008, 2009 financial crisis, the last 10 years have been absolutely terrible. It took the industry most 10 years go the oversupply of tankers and these tankers, they have a finite amount of years that they can be used for transporting oil. You can have tankers that’s 30-40 years old. So naturally with enough time, enough of the tankers will get old. They will get scrapped and that’s exactly what happened during the last 10 years and while this happening, the industry obviously became smarter and stopped ordering new ships. So by 2019, the balance between demand and supply started calm into balance and the rates for the tankers were making started to go up in 2019. And as a result of this, the stocks started heavily to the Op site. And then of course the Coronavirus hit and at first they sold off heavily and then realized that the tankers are good because of the overproduction of oil that had to go into the storage and into the tankers. Consequently, the, the rates for the tankers went sky high, but the stock prices didn’t really respond that well in relation to the rates, because people were petrified that eventually the storage was going to end and we’re going to have destocking causing the rates to go down. So they heavily sold them off. But I think right now we’re a day point that, and I did an interview with the CEO of Scorpio Tankers yesterday. We are at the point where it looks like we’re going the stock a lot faster. The demand for oil is going up very fast as people are getting out of their homes, traveling more, driving more and I think the next a month or two people can be surprised what’s going to happen with the oil tanker stock prices. [00:03:45] Ney Torres: [00:03:45] So will you say Scorpio is your favorite stock or do you have a portfolio of equal amount of tankers? [00:03:52] Mariusz Skonienczny: [00:03:52] I don’t have a favorite. I mean, to be honest tankers is the first time that I ever invested in a basket. Usually I invest in the individual names because I have conviction in individual names and in this case I don’t have a conviction in individual names, but I have a conviction and a sector overall, and I just feel more comfortable having five of them portfolio versus just one [00:04:18] Ney Torres: [00:04:18] When you say, I saw a video you made where you analyze the cost per tanker that each company has done, which is really good. Will you say price to book is a good metric of undervalued? [00:04:30] Mariusz Skonienczny: [00:04:30] Well, I would say that’s probably, that’s probably the best method that that’s available to us. In other words, What it is that we’re paying or ship because the earnings and revenues for these for individual ships and therefore for these companies in general, they are so volatile that how can you even value them based on some kind of earnings multiple or anything like that. So I think that the best way is to buy, buying up, because when you buying these oil tankers, you really buying a portfolio of ships. So the way I see it is if you buy the ships for much less than it costs to build them or in terms of all their ships, which is you include depreciation in it and that’s what value is. If you buy it for less than the value and you have a longterm horizon on average, they should earn enough money. So that the present value of the future cash flow will be more than what you paint today they should. [00:05:33] Ney Torres: [00:05:33] That brings me to my next question is when do you know you’re fairly valued in such a unpredictable sector? [00:05:41] Right. So [00:05:42] Mariusz Skonienczny: [00:05:42] what you can expect from shipping is unpredictability and volatility, right? You can expect that you’re going to have bad earning and because now the, the balance, the supply and demand is very favorable. I think that it’s a good bet that over the next five years, we will have some good yeards and I don’t necessarily see a lot of bad year. We might see some average years, but I think overall we’re going to see more good than bad and based on that and some back of the envelope calculation, it doesn’t take a genius to realize that paying prices. For example, if you look at a company like TK Tanker over the last nine months, they earn their entire market cap. It doesn’t take a genius to realize it’s cheap and I don’t have to be a sure size. I just have to know. Yeah, it’s cheap. I’m okay. Buying it at this price. [00:06:36] Ney Torres: [00:06:36] When do you come out, when do you exit for the next idea or do you know when you see it? [00:06:42] Mariusz Skonienczny: [00:06:42] Exactly. Exactly. I’m going to hold it for as long as I need to. If they drop, they double-triple, I might take some off the table, write the rest. I don’t know when the time comes I’ll see. But selling in general, I feel a lot harder than buying. [00:06:59] Ney Torres: [00:06:59] Is your portfolio comprise of these nine companies you analyze on the videos? [00:07:04] Mariusz Skonienczny: [00:07:04] Pretty much. I have another one that I didn’t analyze yet, so I’m not going to be revealing it here. [00:07:09] Ney Torres: [00:07:09] Okay. No problem. No problem. Sounds interesting. We have talked about in the spot cause before about tankers and there you go, guys. Now you get it. A pretty, pretty good thesis but it’s going to be a bumpy ride. Anything else? Where can people find you by the way? [00:07:25] Mariusz Skonienczny: [00:07:25] Well, I have a website, classicvalueinvestors.com and then I have channel you go to my website, you can just easily find it and then I’m on Twitter. That’s pretty much the three platforms that I use the most. [00:07:38] Ney Torres: [00:07:38] Well, thank you so much. I’m definitely following you and I’m reading all your books. And again, thank you for your time. [00:07:45] Mariusz Skonienczny: [00:07:45] Yup. Thank you. [00:07:46] Unknown Speaker: [00:07:46] Did you learn something today? How can you apply your insights? What’s next for you? The fastest way to make things happen is to just share this podcast episode with more people that may find it valuable to talk about it with them and surround yourself with likeminded people. Hope you found this valuable. Don’t forget to subscribe. See you next time. This podcast references opinions and is for information purposes only not intended to be investment advice, seek a duly licensed professional for investment advice.
Transcription: by Arianne Elnar