The underlying earnings are under so much pressure that OW Bunker might have to perform another downgrade, portfolio manager Carsten Dehn, SEB Invest, tells ShippingWatch.
BY OLE ANDERSEN
OW Bunker, which on Tuesday, October 7th shocked investors and analysts by performing a massive full-year forecast downgrade of 20 percent for 2014, is leaning toward a new downgrade before the end of the year, says Carsten Dehn, chief portfolio manager at SEB Invest, who has along with several other Danish analysts been critical toward OW Bunker and the company's significant downgrade after only having been listed for a few months.
Since OW Bunker's downgrade, which was attributed to the significant decline in the oil price, the price of oil has gone down even further. Meanwhile, the so-called yield predictions, gross profits per ton - on which OW Bunker bases its full-year forecast - are under massive pressure, says Carsten Dehn of SEB, one of the largest institutional investors in the Danish stock market.
"We believe that there is a high probability of a new downgrade before the end of the year. The basic problem is that only a few things need to change in order to cause a dramatic impact on earnings. I believe that the underlying profits are under so much pressure that the company needs to make another adjustment. And that's worrying," Carsten Dehn tells ShippingWatch:
"If the yield generated by OW Bunker in September continues during the next three months, OW Bunker's guidance will not be met."
Significant uncertainty on the short term
OW Bunker CEO Jim Pedersen explained at a teleconference the day after the downgrade last week that there is a significant degree of uncertainty regarding short-term developments, and that the company has performed initiatives to minimize risks against further declines in the oil price.
"There's the question of whether this coverage is a bit short-term. The most interesting thing is whether their underlying earnings are under pressure. And they are," says Carsten Dehn, who - following the OW Bunker downgrade - has hinted that the company today looks completely different than the impression he got at the IPO.
After the downgrade, numerous stock analysts have called for more information from OW Bunker's executive management, and senior analyst at Jyske Bank, Frank Høyer, among others, have asked OW Bunker CEO Jim Pedersen about whether the development has caused changes in the company's business model or whether it remains business as usual.
Photo: OW Bunker
"It does. But every time we've been through situations like this we've of course tried to see what we can do differently and smarter. One of the conclusions is that we probably need to work on insuring ourselves earlier. But we're generally pleased with our business model. We're not worried about our company, but I do understand the concern among our investors," said Jim Pedersen (photo).
The oil price
A barrel of the European reference oil, Brent, cost USD 86.35 on Friday morning, compared to USD 83.80 on Thursday afternoon, according to Ritzau Finans. The US reference oil, West Texas Intermediate, cost USD 83.20, compared to USD 80.80 on Thursday afternoon.
Several major financial institutions have recently stated that the price has dropped too much and that the market is declining too fast. Bank of America and BNP Baripas are among the analysts who have predicted that the prices will remain above USD 80 per barrel.