It’s been ages (four years, to be precise) since I last discussed Vopak (OTCPK:VOPKF) here on Seeking Alpha, and despite posting strong results over the past few years, the price of Vopak’s stock is now trading at multi-year lows. I thinks this is an opportunity to pick up stocks as the market may not have fully noticed that this storage company is diversifying away from oil. Cash flow is strong and predictable, and thanks to the strong balance sheet, Vopak is able to pay a rather attractive dividend. Since Vopak’s business is storage and terminal for a variety of products, I consider this company as an infrastructure game.
Vopak is a Dutch company and its listing on Euronext Amsterdam is a better option than its OTC listing. The stock symbol in Amsterdam is VPK, and with an average daily volume of over 400,000 shares (representing a monetary value of over €10 million per day), the Amsterdam listing clearly offers the best trading options. As Vopak trades and reports in EUR, I will be using the Euro as my base currency throughout this article.
The results for the 2021 financial year were relatively light, but still very correct
Although market conditions were what Vopak describes as “soft”, the company was able to post very decent results in 2021. EBITDA actually fell from 780 million euros to 827 million euros despite a decrease in the average occupancy rate from 90% to 88%, and this increase in EBITDA was almost entirely due to the expansion program which contributed approximately €50 million to EBITDA. Rather, it is a testament to Vopak’s growth plans which are underpinned by the demand for its offerings which can be divided into five main categories.
With its global presence, Vopak can take advantage of changing market circumstances and provide its customers with the services they need, anywhere in the world.
Vopak’s total revenue increased from €1.19 billion to €1.23 billion and total operating income (which is really revenue, not to be confused with operating profit ) was €1.27 billion thanks to “other” sources of income which include management fees for services provided to other entities.
The reported EBIT decreased by around 15%, and much of it is caused by the combination of higher depreciation expense and amortization expense. The total contribution from joint ventures and associates increased and EBIT for fiscal year 2021 was €410 million.
As you can see in the image above, the company’s financial costs have also increased to over 100 million euros. The net result shows a net profit of EUR 243m of which EUR 214m is attributable to Vopak shareholders, which represents an EPS of EUR 1.71 per share.
This is lower than fiscal 2020 (despite generating higher EBITDA) primarily due to higher impairment charges, higher financial charges and a variety of exceptional items. The majority of these exceptional items were related to the impairment charge, but the total impact of these exceptional items was almost €80 million higher than in fiscal year 2020.
So, excluding the exceptional items, Vopak’s total performance was roughly in line with the 2020 results. Not great, but also not as bad as a blind EPS comparison might lead you to believe. to think.
As an infrastructure company, it might make more sense to look at maintaining free cash flow than making an investment decision based solely on EPS.
The cash flow statement starts with an operating cash flow of EUR 682m but you still have to deduct lease payments (EUR 34m) and interest payments (EUR 99m, including interest payments related to leases). On top of that, I also deduct the €25 million in payments to non-controlling interests.
This resulted in adjusted operating cash flow of 524 million euros.
Vopak makes life easier for its investors by clearly splitting growth investments and supporting capex. Total sustaining capital expenditures amounted to €291 million, resulting in an underlying free cash flow result of €233 million. Spread over 125.5 million shares outstanding, the sustainable free cash flow per share is EUR 1.86. This represents a free cash flow yield of just over 6.6% at the current share price of EUR 27.90. Vopak will pay an annual dividend of EUR 1.25 per share, representing a yield of approximately 4.5% at the current share price.
The company continues to grow, but the market still sees it as an oil storage company
An infrastructure company with a robust earnings profile should not see its share price fall. While I understand market concerns about future oil demand, I believe Vopak is viewed and (unfairly) treated as an oil storage company. In recent years, the contribution of oil terminals has steadily decreased as Vopak expands into other areas.
This is also clearly visible in the distribution of growth investments. On average, less than 20% of future growth investments will be devoted to oil terminals.
This should result in an even lower contribution of oil terminals to total revenue and this should hopefully contribute to the perception that Vopak is an “oil terminal company”. And after bringing a few new projects online in 2021, Vopak will complete several more growth initiatives in 2022 and 2023.
A second reason why the market may be a little reluctant at this point is the decline in occupancy throughout 2021. After seeing excellent levels during the pandemic, occupancy has fallen from 90% at the end of 2020 at only 86% as at the end of 2021. No reason to be alarmed, but it is an element to watch.
The balance sheet can clearly handle growth investments. At the end of 2021, the net financial debt (excluding rental debt) was 2.2 billion euros, which translates into a debt ratio below 3 taking into account the EBITDA (excluding rents) of just under of 800 million euros.
I haven’t held a position at Vopak for years, but I’m preparing to leave for a long time. I have sold put options with a strike price of EUR 27 expiring in May and June and although these put options are currently out of the money, the stock will be ex-dividend before the expiration dates . I certainly wouldn’t mind going long at EUR 27 per share, as that would represent a sustainable free cash flow yield of around 7% for this year based on my expectations.
Once the stocks are trading ex-dividend, I’ll probably write more put options because the option premiums are quite attractive.