Scorpio Tankers Q2 2024 Earnings: Supportive Market Fundamentals And A Stronger Balance Sheet

Core Thesis - The bullish thesis on Scorpio Tankers (STNG) remains intact, driven by elevated product rates due to increased ton-mile demand following the EU ban on Russian products and the Red Sea crisis [2][20]. Financial Performance - In 2Q24, STNG reported revenues of $381 million, a 16% increase year-over-year but a 3% decrease sequentially. TCE revenue was $373 million, down 4% quarter-over-quarter but up 14% year-over-year [4][20]. - Operating income for 2Q24 was $254 million, reflecting a 411% increase year-over-year [4]. - Net income attributable to shareholders was $227 million, a 72% increase year-over-year, with diluted EPS at $4.3, up 81% from the previous year [4][20]. - Free cash flow (FCF) for 2Q24 was $239 million, an 18% increase year-over-year [7]. Debt Management - STNG repaid nearly $342 million in debt, reducing net debt to $778 million from $1 billion in 1Q24. The net debt to LTM EBITDA ratio is now less than 1x, and the cash break-even level decreased to $12,500 per day [8][20]. Market Dynamics - Ton-mile demand growth is at 7.5% year-to-date, significantly outpacing fleet growth, primarily due to tankers rerouting via the Cape of Good Hope [9][20]. - The recent opening of the Dangote refinery in Africa is expected to impact product tanker ton-mile demand positively and negatively, depending on its production capacity and export capabilities [10][20]. Fleet and Operational Insights - The average TCE rate in 2Q24 was $38,813 per day, down 2% from 1Q24 but up 21% year-over-year [4][20]. - The LR2 and Handymax average TCE rates decreased by 7% and 14% sequentially, while the medium range (MR) rate increased by 5% [4]. - The overall product fleet is aging, with about 20.5% of the fleet being candidates for scrapping by 2026 [12][13]. Valuation and Investment Appeal - STNG's NAV per share is estimated at $82, with shares trading at 0.9x NAV and an attractive FCF yield of 21% [17][21]. - Despite concerns about softer TCE rates and increasing market supply, the fundamentals remain supportive of elevated TCE rates due to ongoing demand drivers [19][20].