Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Avance Gas Holding Ltd (AVACF, Financial) reported a net profit of $61 million for Q2 2024, contributing to a record-breaking first half-year net profit of $207 million.
- The company successfully sold its last newbuilding VLGC for $120 million, resulting in a profit of $36 million.
- Avance Gas Holding Ltd (AVACF) announced a substantial dividend payout of $1.35 per share for Q2, bringing the total dividend for the first half of 2024 to $3.50 per share.
- The sale of the remaining 12 VLGCs to BW LPG for $1.05 billion is expected to generate a gain of approximately $315 million and significant cash proceeds.
- The company has a strong cash position, with a pro forma cash balance of $485 million after adjusting for the recent transaction with BW LPG.
Negative Points
- The market experienced a soft period during the summer, with Q3 bookings at $41,000 per day, lower than previous quarters.
- The sale of the VLGC fleet resulted in a 30% drop in the stock price, reflecting market concerns about the transaction's valuation.
- The company faces challenges with the arbitrage economics not translating into higher freight rates due to an oversupply of ships in the market.
- There is uncertainty regarding the future strategy for the four newbuild MGCs, with options including selling, chartering, or consolidating with other owners.
- The company will need to manage the termination of interest rate swaps and other financial adjustments, which could impact net finance expenses.
Q & A Highlights
Q: What is the intention with the stock position in BW LPG, and will our shareholder value be affected?
A: Oystein Kalleklev, CEO: The shares in BW LPG will be locked up for 40 days post-delivery. We plan to either sell the shares and distribute the cash to Avance Gas shareholders or directly dividend out the shares. Each Avance Gas share would equate to a quarter share in BW LPG. We aim to maximize shareholder value through this process.
Q: What are the company's plans regarding the ammonia market?
A: Oystein Kalleklev, CEO: We are exploring three options: selling the ships, chartering them, or combining with other owners of similar assets. We are committed to returning proceeds to shareholders and are not planning to contract new entities. The ammonia market fundamentals are strong, and we are receiving interest in our ships.
Q: Could you explain why the arbitrage is not benefiting shipowners in the form of higher rates?
A: Oystein Kalleklev, CEO: The disconnect is due to supply and demand dynamics. Increased slots in the Panama Canal have freed up more ships, driving down freight rates. When the market tightens, shipowners will capture more of the arbitrage. Currently, the terminal owners benefit more.
Q: Why has the stock price dropped 30% after announcing the sale?
A: Oystein Kalleklev, CEO: The stock market is volatile. Despite the drop, the transaction makes financial and strategic sense. We have crystallized an 800% gain for investors over the last five years. The sale price reflects high asset values and substantial net profit.
Q: What are the financial highlights for Q2 2024?
A: Randi Bekkelund, CFO: We delivered a net profit of $61 million for Q2, with an EPS of $0.79. For the first half of 2024, net profit was $207 million, the highest half-year result ever. We announced a Q2 dividend of $1.35 per share, bringing the total for the first half to $3.50 per share.
Q: What is the status of the transaction with BW LPG?
A: Oystein Kalleklev, CEO: The transaction is progressing well, with credit approval for the novation of the sale and leaseback. We expect to deliver most ships to BW around November. The transaction will result in a gain of approximately $315 million.
Q: What are the future projections for the LPG market?
A: Oystein Kalleklev, CEO: The US LPG production is growing, and we expect increased export capacity. The arbitrage is currently favorable, and we anticipate higher freight rates in Q4. The order book shows less fleet growth in 2025, which should support market balance.
Q: What are the company's strategic plans for the remaining MGCs?
A: Oystein Kalleklev, CEO: We are considering selling the ships, securing long-term charters, or combining with other owners. The MGC market is growing, and we believe the ships have significant value. We aim to maximize shareholder value through these options.
Q: How will the company manage the cash proceeds from the BW LPG transaction?
A: Randi Bekkelund, CFO: We will repay all debt, resulting in a pro forma cash balance of $485 million. We plan to distribute surplus cash to shareholders as dividends. We are committed to maintaining a strong cash position while exploring strategic alternatives for the MGCs.
Q: What are the key financial metrics for the second quarter?
A: Randi Bekkelund, CFO: TCE per day was $50,000, in line with guidance. We completed the sale of Avance Pollux for $120 million, resulting in a gain of $36 million. Net finance expense was $1.5 million, and net profit for Q2 was $61 million.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
