Strong cost control, despite the impact of Covid-19, allowed Epic Gas to report more solid results this morning than we anticipated. The global macro trends in LPG shipping have been revised downwards, but not as pessimistic as forecasts during 3Q20, while the recovery in 2021 is still expected. The first dividends were proposed by the company at $ 0.14069 / sh. The combination with Lauritzen Kosan should be completed by the end of 1Q21. Following the more positive report than we anticipated, we are likely to increase our estimates and maintain our purchase recommendation for inventory.
Better than expected results, following a macro situation not as bad as was feared
Despite slightly higher expenses due to Covid-19 related to the crew change, Epic Gas had solid cost control that led to one of the highest EBITDA figures ever – US $ 14.3 million (US $ 10 , 0 million predicted by us). Although we were mentioning the growth of only 0.4% in the global transoceanic LPG trade in 2020, this scenario did not materialize and the trends were revised to 1.1% growth. The outlook for 2021 remains positive, with a forecast of 2.4% growth in transoceanic LPG and a related growth of 5.1% in demand per tonne-mile, compared to the expectation of + 3.8% for capacity pressurized vessels and + 1.8% for semi-refridgerators.
IMO 2030 target already achieved
IMO’s goal is a 40% reduction in carbon intensity by 2030 compared to 2008. Epic Gas claims that the company has already achieved this goal by the end of 2020 and we value this on a very positive side, as it is not only important and very valued initiative, but this should also lead to lower expenses in the future.
Proposed $ 0.14069 / sh dividend, combination with Lauritzen Kosan to be closed at the end of 1Q
Surprisingly, Epic Gas decided to propose a dividend of $ 0.14069 / sh, the first dividend of all time, which provides a solid dividend yield of 7.4%. In addition, the company repeated that the great combination with Lauritzen Kosan A / S to create BW Epic Kosan is still in progress and should be closed at the end of the 1Q. Our estimates still reflect only Epic Gas’s share until the deal is official and more financial information is released and for Epic it is likely that we will increase our estimates following a solid report, while our positive stance on inventory should be reiterated.
Source: Norne Research