Valuation of Scorpio Tankers

Jonas Kaagaard Bro

Student thesis: Master thesis

Abstract

Since the financial crisis in 2007-2008, the product tanker market has primarily been characterized by relatively low freight rates and left investors patiently waiting for the market to recover. Except for a good period in 2015, the market has now been so low for such a long time that some product tanker companies slowly are starting to feel that liquidity-problems are at their doorstep. The question is thus for a potential investor, if now is the time to invest in the product tanker market, as the expected market recovery must be near? Or if it is better to wait and see if any of the companies succumbs to the pressure from the market? This research sets out to estimate the fair market value of equity of the product tanker company Scorpio Tankers as of 31-12-2017, and assess if potential investors should consider investing in the company. Scorpio Tankers is currently the largest owner of product tankers within the industry and is considered one of the leading figures. In 2017 they added 27 vessels to their fleet, by merging with a smaller product tanker company called Navig8 Product Tankers Inc. An aggressive strategy can although be costly if the timing is not right, which is relevant to have in mind as a potential investor. Due to an industry outlook with low profitability, currently weak market conditions, and due to the fact that Scorpio Tankers is rather levered and have signs of liquidity problems, we estimate that the fair market value of equity is USD 1,74 per share as of end 2017, compared to an actual share price of USD 3,05 at end 2017. We thus also argue that potential investors should not consider investing in Scorpio Tankers, as the downside of an investment is considered larger than the potential upside.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2018
Number of pages89