Doing estimates of private market value is often difficult. Recently while reading through the annual report of Tsakos Energy Navaigation, the CEO mentioned how much the ships were worth on the open market compared to the value on the books. After running a few calculations, I came to the conclusion that the private market value of Tsakos was around $75/share, a premium to the current quote.
Now, what can go wrong here? A lot:
- Protectionism could erupt, and diminish the amount of oil shipped across our oceans.
- Too many new boats could be built, eroding the value of existing boats.
- I could have done the math wrong.
- The CEO may have overstated his case.
I like Tsakos from both a strategic and valuation standpoint, but it is not a risk free investment; like most cyclicals, it relies on the robustness of the global economy, and the willingness of economies to buy oil from overseas. Given the uneven distribution of oil across our world, I would expect that oil shippers will be in a good spot for a while, but one can never tell for sure.
Full disclosure: long TNP
Note: this note has been edited to remove two material errors. First, the word “discount” has been changed to “premium” in the first paragraph. Second, my four points only indicate areas where my analysis could go wrong. Point four has been clarified, because I meant that you can never tell with any CEO whether everything was stated correctly, not that I thought it was incorrect here. Rather, I trust their representations.