Wärtsilä is a global leader and supplier of smart technologies and complete lifecycle solutions for marine and energy markets.
Initial interest August / September 2018 and the shares traded around EUR 17. This review was written in September 2018. I bought my first shares 17 January 2019 at EUR 14,15, increased my holdings on 14 June 2019 at EUR 12,89 and another pruchase on 18 July 2019 at EUR 10,83. Average cost price EUR 13,12.
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Investment thesis: The IMO (International Maritime Organization) has finally decided that 2020 will be the date of an upper sulphur emission level of 0.5% compared to the previous 3.5%. By then, shipowners must decide whether to switch to LSFO (low-sulphur marine oil) or install scrubbers on the ships. This will have a major impact on the demand for marine fuel, which will have an adverse effect on the price of oil and refined products.
As a small proportion of the world fleet has installed scrubbers on their ships, the capacity of the suppliers of scrubbers is beginning to be strained, and as we approach the deadline, this will lead to a significant increase in demand for LSFO and thus the spread between gasoil and fuel oil will increase. Switching to LSFO is the preferred option for shipowners rather than installing scrubbers, who have had a wait-and-see attitude to see if the 2020 deadline is delayed or if there are other alternatives. It is now seen that larger orders are coming for scrubber installation and that shipowners suggest that the scrubber install time is low and installation will be a competitive advantage as they can continue to burn HSFO at a lower cost.
A survey by UBS found that only 2% of the global fleet will install scrubbers by 2020. 68% will burn LSFO, while 21% will install scrubbers. 9% will phase out new ships, while 6% will choose LNG. The survey also showed that only 64% of the fleet will meet the requirements for ballast water purification systems and sulphur emissions by 2020. Analysts estimate that the green shipping market could be worth USD 250 billion over the next five years.
Supplier capacity issues: Due to an increase in demand, it has become tight at scrubbers suppliers. At Wartsila, there is still room to install scrubber in 2019. The company’s orders increased by 14% in the second quarter and received a USD 198 million order from MSC. Alfa Laval experienced a significant increase in the number of orders where systems associated with scrubber accounted for a large part. Three major suppliers are Wartsila, Alfa Laval and Yara Marine.
The systems were first installed on cruise ships and ferries as they operate within discharge areas, but are now installed on bulk, tanker and container ships. Based on EGCSA data, 983 ships with scrubber exhaust systems were installed or on order as of May 31, 2018.
Technical analysis: Technically, Wartsila is a sales candidate with lower tops and bottoms. Trading around the support level at EUR 16.76 and a breach through the support level indicate further decline. The stock went through 200 days moving average. Death cross observed in mid-August and the stock has responded with a sharp fall afterwards. RSI of 30 supports the thesis that the stock is a sales candidate. (September 2018).
Investment checklist: Score 80
To read more about IMO 2020 I recommend the overview provided by the Visual Capitalist: https://www.visualcapitalist.com/imo-2020-the-big-shipping-shake-up/