Friday, November 9, 2018

EURN or You're Out

I think Paddy Rodgers is doing a tremendous job running crude oil shipper Euronav, but I've decided to sell my shares.

Just over a year ago, I wrote about Euronav as a potential value play. The industry suffered from overcapacity, and Euronav was conservatively-financed and trading at a nice discount to book value.

That discount has narrowed, both through a rising stock price, and through continued losses as the dire industry situation persists. Because new deliveries of ships are expected to continue into 2019, the industry's problems may continue for some time. For this reason, I have exited this stock.

Considering global demand for oil continues to be strong, I did not expect the overcapacity issues to last this long. I was wrong in thinking the situation would have alleviated by now. Nevertheless, because (1) I invested with a large margin of safety and (2) I got lucky with a buoyant stock market over the period, the end result was still profitable.

I think Rodgers is one of the better capital allocators in this industry, and it wouldn't surprise me to see the company do very well once the cycle turns. I just don't want to put my capital at risk in this industry without a significant margin of safety.

Disclosure: No position

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