Ferarnley on KNOP Dividend return should rocket the share price
KNOP - Dividend return should triple the share price
Summary
• KNOT Offshore Partners (NYSE: KNOP) is a leading player in the shuttle tanker market
• The stock is 70% down from a sharp dividend cut in 2022
• Fearnley Securities believes that the dividend could be reinstated this summer
• The company has 98,5% utilization, decreased debt and doubled its backlog to 980 million USD, or 2.8 years per ship.
• Even a small dividend would increase the share price materially, as it did in the DLNG case late last year.
• Minimal downside, any dividend would rocket the share price up.
Shuttle Tankers: A Niche but Essential Market
Unlike conventional tankers transporting oil between terminals, shuttle tankers are a critical link between offshore production units and onshore refineries. These vessels operate under long-term contracts ensuring revenue visibility.
KNOP’s fleet comprises 18 shuttle tankers, including 12 Suezmax, 5 Aframax, and 1 Panamax vessel. Major clients include Equinor, Shell, Petrobras, and TotalEnergies, reinforcing the stability of its cash flows.
The fleet is operating at 98.8% utilization. The Contractual backlog expanded (as of September 30, 2024) to $980m of fixed contracts averaging 2.8 years. The Charterers’ options average a further 2.4 years. The fleet has a contractual backlog of 5.2 years if all options are exercised.
Dividend Cut and Path to Recovery
In response to the delays in North Sea projects, KNOP reduced its quarterly dividend from $0.52/unit to $0.026/unit in late 2022. That drove the share price down by 70%. However, the company has since restructured contracts and secured new agreements that improve fleet utilization and double the contractual backlog. When the management announced the dividend cut, it clearly stated the conditions under which the dividends would increase again. Those conditions have been broadly achieved by now. The next step is for the management to deliver under its undertaking.
Fearnley Securities is bullish on dividend restart
According to Fearnley Securities, KNOP’s current backlog supports a dividend payout of approximately $0.30/unit per quarter. If the company follows through with its vessel optimization strategy, a distribution increase could be seen by mid-2025.
Valuation: Deep Discount to NAV
KNOP trades at a significant discount on its net asset value (NAV). Fearnley estimates a NAV per unit of $13.8 based on fleet valuations and contracted revenue. With the stock trading below $6, the price-to-NAV ratio is just 0.43x, indicating substantial upside potential.
Improved investor confidence in the dividend reinstatement and the company’s ability to refinance upcoming debt maturities without excessive equity dilution will be the key drivers for treating.
Conclusion
KNOT Offshore Partners is at a pivotal moment. The stock trades at a deep discount to NAV, while contract stability and fleet repositioning suggest a pathway for dividend recovery. If management successfully executes its refinancing strategy and optimizes vessel utilization, KNOP could see significant appreciation from current levels. When dividends were paid, KNOP traded at three times higher than today.
Dividend return should triple the share price
Summary
• KNOT Offshore Partners (NYSE: KNOP) is a leading player in the shuttle tanker market
• The stock is 70% down from a sharp dividend cut in 2022
• Fearnley Securities believes that the dividend could be reinstated this summer
• The company has 98,5% utilization, decreased debt and doubled its backlog to 980 million USD, or 2.8 years per ship.
• Even a small dividend would increase the share price materially, as it did in the DLNG case late last year.
• Minimal downside, any dividend would rocket the share price up.
Shuttle Tankers: A Niche but Essential Market
Unlike conventional tankers transporting oil between terminals, shuttle tankers are a critical link between offshore production units and onshore refineries. These vessels operate under long-term contracts ensuring revenue visibility.
KNOP’s fleet comprises 18 shuttle tankers, including 12 Suezmax, 5 Aframax, and 1 Panamax vessel. Major clients include Equinor, Shell, Petrobras, and TotalEnergies, reinforcing the stability of its cash flows.
The fleet is operating at 98.8% utilization. The Contractual backlog expanded (as of September 30, 2024) to $980m of fixed contracts averaging 2.8 years. The Charterers’ options average a further 2.4 years. The fleet has a contractual backlog of 5.2 years if all options are exercised.
Dividend Cut and Path to Recovery
In response to the delays in North Sea projects, KNOP reduced its quarterly dividend from $0.52/unit to $0.026/unit in late 2022. That drove the share price down by 70%. However, the company has since restructured contracts and secured new agreements that improve fleet utilization and double the contractual backlog. When the management announced the dividend cut, it clearly stated the conditions under which the dividends would increase again. Those conditions have been broadly achieved by now. The next step is for the management to deliver under its undertaking.
Fearnley Securities is bullish on dividend restart
According to Fearnley Securities, KNOP’s current backlog supports a dividend payout of approximately $0.30/unit per quarter. If the company follows through with its vessel optimization strategy, a distribution increase could be seen by mid-2025.
Valuation: Deep Discount to NAV
KNOP trades at a significant discount on its net asset value (NAV). Fearnley estimates a NAV per unit of $13.8 based on fleet valuations and contracted revenue. With the stock trading below $6, the price-to-NAV ratio is just 0.43x, indicating substantial upside potential.
Improved investor confidence in the dividend reinstatement and the company’s ability to refinance upcoming debt maturities without excessive equity dilution will be the key drivers for treating.
Conclusion
KNOT Offshore Partners is at a pivotal moment. The stock trades at a deep discount to NAV, while contract stability and fleet repositioning suggest a pathway for dividend recovery. If management successfully executes its refinancing strategy and optimizes vessel utilization, KNOP could see significant appreciation from current levels. When dividends were paid, KNOP traded at three times higher than today.
Dividend return should triple the share price
NordicGuy
10.03.2025 kl 14:37
234
KNop just announced it sold Dan Sabia, the last ship that was not long term chartered. When management declared dividend reduction, they mentioned they want to see all boats chartered before dividend resumption. It means we should expect dividend hike!
NordicGuy
19.03.2025 kl 10:46
57
Knop is reporting tomorrow. It is the first report after all conditions for the dividend resumptions are met. That should mean dividends!
If you have a Fearnley account, ask them for their KNOP investment presentation on the resumption of dividends.
If you have a Fearnley account, ask them for their KNOP investment presentation on the resumption of dividends.