TORM: Record high in second quarter, re-examination of valuation picture as share price momentum slows (NASDAQ: TRMD )

Despite worrying data trends in China, global growth prospects have improved in recent weeks.The U.S. and Europe are helping improve real economic expansion in 2023, a trend that benefits cyclicals and global energy Require.

I have been paying close attention to these developments at the macro level. Today, I reiterate my Hold rating on TORM plc (NASDAQ: TRMD). I assert that the valuation picture has become more positive, but the technical picture has softened.

Global GDP growth expected to rise

According to Seeking Alpha, TRMD operates as a shipping company engaged in the transportation of refined oil products and crude oil globally. It is divided into two operating segments: tanker segment and ship exhaust segment. The company transports gasoline, jet fuel, naphtha and gas oil, as well as dirty petroleum products such as fuel oil.It also works to develop and Produce advanced, green marine equipment.

The $2.1 billion London-based oil and gas storage and transportation company, part of the energy industry, trades at a low trailing 12-month GAAP P/E ratio of 2.7 and yields a whopping 27.8% on dividends paid as of September 15, 2023. Although it doesn’t There is short interest, but the stock’s implied volatility is just 37% ahead of the November earnings report.

Back in August, TORM announced its second-quarter results GAAP earnings per share were $2.14 Revenue increased 13.5% year over year to $384 million. For fiscal 2023, time charter equivalent (TCE) earnings are expected to be between $105 and $1.175 billion, narrowing from previous expectations but still at the lower end of guidance. Meanwhile, EBITDA also disappointed, currently expected to be $775-$900 million. Shares were volatile following the news, but it was the company’s best second-quarter earnings period on record, and it used the futures market to secure freight rates given last quarter’s high levels. The company paid a $1.50 dividend (paid last week).

Second Quarter 2023 Highlights

During this period telephone conferenceThe management team reported that the company has been growing its fleet, acquiring 10 second-hand vessels in the first half, with a focus on vessels built between 2010 and 2015. Product tanker market demand has increased due to geopolitical conflicts (protracted conflicts). interest, which is what bulls want to see) and trade realignment, leading to more volatile freight rates. I like to participate in a risk management plan for futures trading, where some of the risk is hedged through a forward freight agreement (FFA). While OPEC+ oil production cuts have had only a modest impact, I may have exaggerated this risk in my article. initial analysis.

Geopolitical tensions lead to gradual increase in average shipping costs

TORM said it is willing to extend the service life of the ship to more than 15 years, with associated maintenance costs typically ranging from $500,000 to $1 million. Cost management is a top priority and the One Torm platform has adopted strict cost control measures. However, a major risk is weak shipyard capacity, which could inhibit new shipbuilding activity.

exist Valuation, analysts expect earnings per share over the next 12 months to be close to $7.Estimated earnings per share for fiscal year 2024 fall However, as the tanker market normalizes, this proportion will decline by approximately 10%. If we assume normalized earnings of $5 and apply a forward P/E ratio of 7x, the stock price should be closer to $35; this is what my initial analysis concluded. This is a bit more optimistic than my previous outlook, as the industry appears to be continuing to be strong and global growth prospects have improved. Given the still bullish part of the market cycle, a modest P/E ratio is warranted, and value investors should use a higher margin of safety here.

TORM: Compelling valuation metrics persist

TRMD has the highest valuation rating compared to its peers, which is undisputed given that its P/E ratio is so low. On the A-grade growth front, however, I differ from the quantitative system as earnings are expected to decline in the coming quarters, as will revenue growth.But the company is still good profitable and the ability to pay large dividends.I want to see stocks momentum Improvement, another strong earnings report could help Consensus EPS Forecast.

competitor analysis

Looking ahead, corporate activity data provided by Wall Street Horizon shows that BMO has confirmed its third-quarter 2023 earnings date for Thursday, November 9. No other volatility catalysts are expected before then.

Corporate Events Risk Calendar

Technical points

Nothing has changed in my life since Second quarter review Chart of TRMD. Note in the chart below that the stock price has been consolidating below the currently declining 200-day moving average. This only further reinforces the importance of $28 to $29 that I noted earlier – the stock sold off in August as it attempted to rise above the 200-day moving average. Additionally, bulls have managed to hold on to the $22 to $23 area this summer, which is encouraging. Bulls here might make sense with, say, a top under $21, but I’d really like to see the stock climb above the heavy volume area with prices as high as $30 or so – which could signal an eventual move back to 36 The dollar is trading at a high of $37 earlier this year.

Of course, holders receive very high returns in the process, so it’s always important to keep a total return perspective. Also, keep an eye on the trend of the RSI Momentum indicator at the top of the chart – it showed a bearish divergence pattern at the top and bullish divergence characteristics when the stock made its recent lows from June into July. Interestingly, volume picked up in August and early September, so traders may be bracing for big moves in the stock.

Overall, this is a slightly bearish chart considering the 200-day EMA and TRMD are trading rollover below this key trend indicator line.

TORM: Continued trading range, bearish decline from 200-day EMA

bottom line

I reiterate my Hold rating on TRMD. I think the valuation picture has improved, but the technical picture has become more bearish.