A focus on debt repayments and short-term weakness in the tanker market have led Morgan Stanley to downgrade shares in Greek shipowner Tsakos Energy Navigation (TEN).
Analyst Fotis Giannakoulis dropped the stock to equal weight today, suggesting the upcoming refinancing of preferred stocks and high debt repayments could eat into the company’s liquidity.
Giannakoulis said with the capital markets closed to “small, illiquid, and high yield stocks”, and tanker rates challenged, Tsakos would likely need to use existing cash to repay its series B and C convertible shares before coupons begin to escalate.
“Although we see no funding gap or risk on its $0.20 dividend, the heavy debt repayment schedule reduces its ability to grow or pay higher dividends, even as the tanker market tightens in 2020-21,” the analyst said.
“We still see significant long-term value as leverage eventually declines and free cash flows becomes available to common equity holders.”
Giannakoulis, who has a $4 per share target price on TEN, said solid long-term contracts and low costs would help with the repayment of the company’s debt.
The shipowner has one-third of its fleet on three to nine-year charters with oil majors.
"At the same time, Tsakos enjoys the lowest interest cost in the sector even when compared with less levered companies, and has by far the lowest running cost for its vessels, which allow it to maintain its cash break-even at normalised levels," Giannakoulis said.
TEN shares closed at $3.45 each in New York last night, against a 52-week low of $2.56 and a high of $3.98 per share.
The company’s market capitalisation stands at $384.73m.
