• Kashyap Sriram

Monthly rollup | July 2021

Stocks Mentioned: Euronav (EURN), Korvus Gold (KOR), DHT Holdings (DHT), Nordic American Tankers (NAT), Matson Inc (MATX), Cameco (CCJ), Uranium Miners (URNM)


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July 03 2022


July 07 2021



July 10 2021


Revisiting the oil tanker trade


Sometimes, it pays to re-visit a trade that did not work out as expected. In last month’s newsletter, I mentioned that it might be time to look at tankers again. I did, and I think it’s time to take another whack at it.


I gave a presentation on the Oil Tanker industry at the TDV conference last July. I have uploaded my presentation here


And the voice recording here


To sum up the trade thesis:

  • Fleet size growth will soon turn negative as newbuilds aren’t replacing older vessels being sent to the scrap heap.

  • Oil demand is going to pick up as the covid hysteria passes and governments find it difficult to impose draconian lockdowns.

  • Refinery utilization rates will rise; demand for transporting crude to refineries and end products to consumer markets increases.

  • Demand for tankers increase => excess returns earned by the current fleet increases => tanker companies return capital to shareholders through buybacks and dividends.

  • As a nice bonus, rising steel prices keeps supply down by making newbuilds more expensive and increasing the incentive to scrap older vessels. This means the next rally in TCE rates can last a lot longer than last year’s spike.


The Fundamentals


I performed a simple valuation exercise. I valued the companies’ fleet using the latest prices for vessels from Fearnleys, adding working capital, newbuilds and other non-current assets, and netting out long term debt. The data is presented below.


Euronav (EURN) is the market leader, with an owned fleet of 45 VLCCs and 24 Suezmax. Frontline (FRO) comes next, with a fleet of 17 VLCCs, 29 Suezmax and 22 Aframax. The company tends to trade at a premium, in both good times and bad, because investors accord a premium for its management group.

DHT Holdings (DHT) is exclusively into the VLCC segment, with a fleet of 27 owned VLCCs. Nordic American Tankers (NAT) is a retail favourite and is exclusively into the Suezmax segment, with a fleet of 23 Suezmax. The trouble with NAT is that its fleet is ageing. The average age of its vessels is 13.2 years.


My top picks would be Euronav and DHT Holdings since I see both value and growth in these names. If the market really heats up, I'd buy into all four and ride the uptrend.


Short Cameco (CCJ)/ North Shore Global Uranium Mining ETF (URNM)


The uranium spot price is on an uptrend but hasn't yet breached $35/lb. While the long term bull thesis is still intact, the stocks have gotten way ahead of themselves. Assuming Cameco produces full bore from all its operations at an operating cost of $32/lb, my valuation model shows that the stock is currently being priced for $69/lb uranium. For comparison, under similar assumptions, Ur-Energy (URG) is priced at $54/lb uranium. Note that these are best case wildly optimistic scenarios. My valuation models show that the entire uranium space is overvalued given that spot uranium prices haven't moved much even as uranium stocks have really taken off.


Price action wise, the URNM ETF and Cameco appear to have topped last month, making this a good entry point for a short trade.


Buy Korvus Gold (KOR, KOR.TO) as takeover speculation.


As I mentioned in the last newsletter, the clock is ticking for Anglogold Ashanti (AU) to make an offer. On May 6, Anglo advanced Corvus $20 million as a loan, and in return was granted an exclusivity period of 90 days in which Corvus would not engage in any other M&A or asset sale discussions. The deadline is August 4, which is fast approaching. I do see a high probability of an offer coming through.

KOR has fallen along with the rest of the gold stocks and remains a compelling value on a standalone basis, even without the added kicker from the potential takeover. If the offer materializes, buying here would mean a 30%+ return within a month.


July 23 2021


From the NY Times: The Federal Reserve entered the 1960s with the same two-part job that it has now: fostering stable inflation and maximum employment by keeping the economy growing at an even keel using its monetary policies, which influence how expensive it is to borrow money. Back then, the Fed was very focused on the employment part of its goal. The Employment Act of 1946 had instructed the government to dedicate itself to creating a strong job market. Years of weak price gains made runaway inflation seem like a distant risk, and a growing number of economists had come to believe that higher employment levels could be “bought” with slightly more inflation. Even when the then-Fed chair, William McChesney Martin, grew worried about price pressures in the mid-1960s, the institution was slow to move, because some of his colleagues hoped to drive unemployment down to 4 percent. When it did raise rates, it did so slowly — a situation that was exacerbated in the 1970s, when Mr. Martin’s successor, Arthur Burns, came under intense political pressure from the Nixon White House to keep easy-money policies in place. By the time the Fed began to fight inflation in earnest, it was too late.


July 24 2021


Bit dated but still relevant: Brazil’s Worst Drought In 91 Years Is Good News For LNG | OilPrice.com


July 29 2021


MATX reports earnings today after the close. Last quarter earnings came in above guidance but shares didn't respond to the earnings surprise (see April 27-28 chart). This quarter should see about 85-100% sequential growth in earnings. The company's preliminary expectations of $3.58-$3.73 EPS is way above analyst consensus of $2.96 ($2.25 and $3.67 are the only 2 analyst forecasts available). Watch for an opportunity to go long today. Idea is to sell the expected pop in share price tomorrow. I also have a long-term holding in MATX, my only exposure to container shipping.


July 30 2021


In case anyone followed me on the above [MATX trade], I closed this trade for a miniscule gain today. I expected the EPS to be higher than guided but it came in at $3.71, within guidance range. I still like the stock as a long term hold.


This content was originally published as part of Against All Odds Research.

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