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Teekay (TK), a Canadian-based company is one of the world’s largest tanker owners and operators. The company provides a full suite of ship-to-ship transfer services in the oil, gas, and dry bulk industries; and offshore production services. The company spun out the Teekay Offshore division to Brookfield Business Partners L.P (BBU) through two separate transactions in 2017 and 2019 and exited the offshore oil exploration business. The company also sold its LNG shipping business to Stonepeak Infrastructure Partners in 2022 in a $6.2 billion transaction.
The company now operates as Teekay Corporation and Teekay Tankers Ltd. (TNK), which is a controlled subsidiary of Teekay Corporation. Teekay is now one of the world’s largest marine energy transportation companies. The consolidated Teekay entities manage and operate total assets under management of approximately $2 billion, comprised of approximately 65 conventional tankers and other marine assets. Its major clients include energy and utility companies, major oil traders and consumers, government agencies, and other industries that depend on marine transportation.
On March 22, 2023, Teekay announced a buyback of $30 million, representing around 5% of its market cap at announcement. This announcement follows the completion of its previous $30 million share repurchase program announced in August ’22.
Q4 2022 Results:
“During the fourth quarter, Teekay Tankers reported its highest ever adjusted net income, driven by strong tanker supply and demand fundamentals, which has been further boosted by an increase in tanker tonne-miles resulting from the structural changes to energy trade flows following Russia’s invasion of Ukraine. The strong tanker market over the past year has transformed Teekay Tankers’ balance sheet, and we are now in the process of refinancing 19 of its sale-leaseback financings completed during the previous cyclical downturn with a new corporate revolver, which is expected to further reduce our interest costs and cash flow break-even levels. The spot charter rates that Teekay Tankers’ fleet has secured so far in first quarter of 2023 remain strong and, with almost all of Teekay Tankers’ fleet currently trading in the spot market, we believe we have significant operating leverage to benefit from this robust tanker market.”
Average spot charter rate for a 160,000 cubic meter LNG storage vessel worldwide from 2015-2021
Senior Management Change at Teekay:
In November 2022, Teekay announced the retirement of its Executive Vice President and Chief Financial Officer, Mr. Vince Lok, effective January 1, 2023, after nearly 30 years with the company, including the past 16 years as Teekay’s Group CFO. Upon his retirement, Mr. Brody Speers, Vice President, Finance & Treasurer, will be assuming Mr. Lok’s responsibilities and will continue to oversee Teekay’s Finance, Accounting, and Tax teams. Mr. Lok has agreed to stay on as an advisor through the end of 2023 to help ensure a smooth transition as well as support the company’s strategic initiatives. Over the past 30 years, he has played an instrumental role in the evolution of the Teekay Group.
Capital Allocation & Share Repurchases:
Since reporting earnings last quarter, Teekay has repurchased a further $13.4 million of its outstanding common shares, bringing the total repurchased since the beginning of the program in August 2022 to $18.7 million at an average price of $4.16 per share. In recent months, the company has repurchased 6.3% of its outstanding common stock at an average price of $4.64 per share totaling $30 million. Total Q1 2023 repurchases to date can be estimated to be around 2.5 million shares.
The company is more inclined to buy back stock and less interested in dividend payments.
Profitability:
Teekay saw its revenue decline in 2020 and 2021, which could be partially attributed to oil prices dropping sharply as lockdowns and travel restrictions were implemented around the world due to the pandemic. Revenue has risen in 2022 to $1.19 billion from $682 million in 2021 but is yet to reach pre-pandemic levels. The decline in revenue is also on account of the company’s divestitures of Teekay Offshore and its LNG business.
Valuation:
Teekay trades at a low EV/EBITDA multiple of around 4.3 and the company has been free cash flow positive for the last four year, albeit with a lot of volatility.
Debt Reduction:
Teekay is also working to reduce its debt burden as market fundamentals improve. TK’s debt-to-equity ratio has reduced from 124.9% to 40.4% over the past 5 years.
Kenneth Hvid, Teekay’s President and CEO, commented:
“In addition, in January 2023, Teekay Parent repaid the remaining amount due at maturity on its convertible bond and is now debt free with over $300 million in cash, which is a major milestone in a six-year journey during which we have focused on simplifying and streamlining our group structure while strengthening our balance sheet and financial flexibility to support our long-term value-creation strategy.”
The Bottom Line:
Teekay appears to be positioned very well with record earnings, improving spot rates for its tankers, debt-free at the parent level and is anticipating new demand as seen by its orders for new tankers. Shipping and energy are two cyclical industries and the primary risks to the company are a decline in oil prices or a decline in demand due to a recession.
Welcome to edition 52 of Buyback Wednesdays, a weekly series that tracks the top stock buyback announcements during the prior week. The companies in the list below are the ones that announced the most significant buybacks as a percentage of their market caps. They are not the largest buybacks in absolute dollar terms. A word of caution. Some of these companies could be low-volume small-cap or micro-cap stocks with a market cap below $2 billion.
With earnings season yet to start, buyback activity dropped significantly as expected. There were only 9 buyback announcements last week compared to 20 in the prior week.
1. Logan Ridge Finance Corporation (LRFC): $20.7
On March 23, 2023, the Board of Directors of this business development company authorized a new $5 million share repurchase program, equal to around 9% of its market cap at announcement.
| Market Cap: $56.12M | Avg. Daily Volume (30 days): 7,531 | Revenue (TTM): 14.93M |
| Net Income Margin (TTM): -80.55% | ROE (TTM): -11.90% | Net Debt: $110.3M |
| P/E: N/A | Forward P/E: N/A | EV/EBITDA (TTM): N/A |
2. Ellington Financial Inc. (EFC): $
On March 21, 2023, the Board of Directors of this mortgage-related asset manager, authorized a new share repurchase of $50 million of the company’s Class A common stock, equal to 6.5% of its market cap at announcement.
| Market Cap: $817.90M | Avg. Daily Volume (30 days): 1,151,036 | Revenue (TTM): $41.69M |
| Net Income Margin (TTM):-168.04% | ROE (TTM): -5.57% | Net Debt: $11.88B |
| P/E: N/A | Forward P/E: 6.04 | Price/ Tang. Book : 0.79 |
3. Royalty Pharma plc (RPRX): $37.07
On March 27, 2023, the Board of Directors of this buyer of biopharmaceutical royalties approved a new $1 billion share repurchase program equal to 6% of its market cap at announcement.
| Market Cap: $22.56B | Avg. Daily Volume (30 days): 2,304,671 | Revenue (TTM): $2.24B |
| Net Income Margin (TTM): 1.91% | ROE (TTM): 2.33% | Net Debt: $5.38B |
| P/E: 382.32 | Forward P/E: 311.58 | EV/EBITDA (TTM): 27.68 |
4. Dave & Buster’s Entertainment, Inc. (PLAY): $36.21
On March 28, 2023, the Board of Directors of this entertainment company authorized a new $100 million share repurchase program, equal to 5.7% of its market cap at announcement.
| Market Cap: $1.75B | Avg. Daily Volume (30 days): 931,604 | Revenue (TTM): $1.74B |
| Net Income Margin (TTM): 7.09% | ROE (TTM): 40.7% | Net Debt: $2.77B |
| P/E: 14.32 | Forward P/E: 13.46 | EV/EBITDA (TTM): 10.88 |
5. Teekay Corporation (TK): $6.27
On March 22, 2023, the Board of Directors of this crude oil and gas marine transportation services provider authorized a new $30 million stock buyback program, representing around 5% of its market cap at announcement.
| Market Cap: $616.46M | Avg. Daily Volume (30 days): 1,897,435 | Revenue (TTM): $1.19B |
| Net Income Margin (TTM): 6.59% | ROE (TTM): 11.03% | Net Debt: $77.53M |
| P/E: 6.54 | Forward P/E: N/A | EV/EBITDA (TTM): 4.31 |
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