Meanwhile, Teekay Offshore Partners L.P. (NYSE:TOO), a owner-operator of shuttle tankers, is finding it hard to turn a consistent profit as day rates vary. During the last four years, Teekay Offshore Partners L.P. (NYSE:TOO)’s net income has fluctuated between $(116) million and $122 million (2012). In addition, during the past five quarters, net income has swayed between $(12) million and $68 million with an average of $28 million per quarter. Furthermore, Teekay Offshore Partners L.P. (NYSE:TOO)’s huge debt pile is strangling the company’s net income, as debt interest alone accounted for 25% of EBIT during 2012.
Scorpio Tankers Inc. (NYSE:STNG) has one of the best balance sheets in the business with low levels of debt and the company’s asset base just keeps growing, but for how much longer? With the company’s fleet projected to more than double over the next few years, based on the number of ships on order, the company will have to find customers to use them.
According to U.K.-based Drewry Maritime Research, global supply in the tanker market still exceeds demand by about 87 million dead-weight-tones and supply is still far outstripping demand as demand for tankers expanded 0.6% during the fourth quarter of last year while supply expanded 1%. In addition, supply is expected to exceed demand by almost 200% during 2013 as new ships continue to be delivered that were ordered back in 2007/2008.
So, Scorpio is making a huge bullish bet on the tanker market and the company could be right. Whatever the outcome, it would appear that Scorpio is in the best position to make this bet as the company has one of the best balance sheets in the tanker sector and the company has just returned to profitability. For investors who like risk, Scorpio could be a good punt, but risk averse investors should wait for a stronger recovery in the shipping sector.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Rupert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Scorpio Is Bullish on the Tanker Market, But Is it Right? originally appeared on Fool.com is written by Rupert Hargreaves.
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