Avance Gas (AVANCE, Financial) is a provider of marine transportation services for fully refrigerated liquefied petroleum gas worldwide. As of December 2014, the company owned and operated a fleet of eight very large gas carriers. Further, the company had six VLGC under construction. This article discusses the reasons to be bullish on Avance Gas for 2015 and beyond.
The first reason to be bullish on Avance Gas is the company’s excellent dividend profile that is likely to sustain through 2015. For 4Q14, Avance Gas declared a dividend of $1 per share and this implies a robust annual dividend payout of $4 per share. Avance Gas is therefore a good stock to consider for dividend investing. Besides paying a high dividend, Avance Gas also announced a $15 million share buyback in 4Q14. There are two important points to note here – First, the company is shareholder friendly with high dividends and share buyback. Second, the company’s cash and operating cash flow position is robust and it allows for share buyback.
The second reason to be bullish on Avance Gas is the strong revenue growth that is expected in 2015 and 2016. As mentioned above, Avance Gas has eight VLGC in operation. However, the company expects delivery of 1 VLGC in 1Q15, 3 VLGC in 2Q15 and 2 VLGC in 3Q15. In other words, by the end of 2015, Avance Gas will have a fleet of 14 vessels. While the full impact of new vessel addition will not come in FY15, the revenue growth will still be robust in FY15 along with strong revenue growth in FY16 when the full impact of VLGC addition will be reflected in the company’s revenue. Avance Gas therefore has a strong growth pipeline and this will take the stock higher in the coming quarters. More importantly, I believe that the company’s dividends will increase further in FY15 and FY16 as the cash flow surges on new vessel addition.
Another positive point from a financing perspective is that the company’s capital expenditure for the delivery of six VLGC is fully funded and the company also entered into a new $200 million credit facility as of 4Q14. Therefore, there is no requirement of additional funds as this point of time and the company’s cash flows can be utilized for shareholder value creation.
I must mention here that the company’s average time charter equivalent declined to $70,324 in 4Q14 from $83,893 in 3Q13. However, the company’s TCE rate still remains robust to deliver strong growth in the coming quarters. For the four months ended December 2014, the company’s operating cash flow was $43.6 million and I expect the company’s quarterly cash flows to be well in excess of $60 million once all 14 VLGC are operational. This would imply an annual OCF of approximately $250 million and this will ensure that the company continues to pay high dividends and also opportunistically buyback shares.
From a balance sheet perspective, Avance Gas is well placed with an equity ratio of 73% as of December 2014. Further, the company had $162 million in cash and equivalents that would aid in funding the new vessel delivery through 2015.
Considering these positive factors, Avance Gas is an excellent stock to consider for 2015 and 2016. I believe that the stock has the potential to move higher in the coming quarters and investors will also benefit through high dividends that are sustainable.
