Hafnia (HAFN) December 2024 Valuation Model and Risk Framework
Hafnia (HAFN) December 2024 Valuation Model and Risk Framework
This HAFN valuation model includes a vessel valuation, financial forecasts, segment breakdown, and detailed operating model. Assumptions can easily be adjusted by the user.
Hafnia is one of the best managed, cheapest, and lowest levered product tanker companies in the world. It is currently suffering from oil tankers encroaching on its business (see video link below). This company has a strong balance sheet and has done a good job of buying ships when the market is low and selling during euphoria.
Despite the known risks discussed below, the company has very low debt levels (19% LTV, lowest ever), has a $100 million share buyback currently underway, and has paid an LTM 22% dividend on NAV / 28% dividend on market value (90% payout). The next dividend may be smaller, given capital used for the current share buyback (tax-efficient form of capital return), but payouts will effectively remain the same.
We think that given recent sanctions against Iranian tankers, the market will reassess the shadow fleet of Iran/Russian tankers in the first quarter of 2025, and that VLCC tankers and product tankers are now trading cheap on a long term basis.
The product market overall is much tighter than the tanker market when you look at upcoming vessel supply, but the entire shipping sector has moved together due to short term tanker cannibalization. 4Q24 was also a seasonally weak period for VLCC rates, and VLCC tankers were encroaching on product tanker business during the quarter, putting pressure on product tanker rates.
Taking a longer term view, this product tanker business trades cheap at 4.7x fwd EBITDA and at a 32.8% discount to our adj. NAV. The CEO believes that this valuation is a result of an overreaction to 4Q market conditions. It is important to consider that this is a cyclical industry with very long term secular headwinds with flat to declining oil demand in developed markets.
Currently, the company is buying back about 20% of the stock's daily average trading volume, and we could see some volatility in 1Q25 after the buyback is exhausted if the market sentiment doesn't turn.
Short Term Risks: One of the risks that is being priced in is that the Suez Canal reopens. This accounts for 5-6% ton-mile supply for the sector. The CEO feels that this has already been priced in, as tanker rates pre-crisis were 20% lower and they are reflecting that now.
Another risk is weaker demand from China. The CEO explains that China risk is more relevant to oil tankers, not product tankers. However, this is still an INDIRECT risk in our opinion due to oil tanker cannibalization, and has been partially priced in...
The supply/demand of vessels (scrapping, etc.) is visualized in the video link. The CEO explains that there could be a supply shortage of product tankers by 2028/29 if global oil demand stays flat and scrapping estimates are realized for 15 year old+ vessels. A third risk is that scrapping is lower than he expects.
Long Term Risks: Flat to declining oil demand in developed markets.
Overall SSR Risk Ranking: 4 out of 5 (High)
CEO Discussing Buyback on 3Q24 Call and Potential Recovery: https://www.youtube.com/watch?time_continue=136&v=etKBYTLksoU&embeds_referring_euri=https%3A%2F%2Fwww.bing.com%2F&embeds_referring_origin=https%3A%2F%2Fwww.bing.com&source_ve_path=MjM4NTE
See more analysis in the model attached.
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