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The 4Q17 numbers were in-line with expectations, with few surprises emerging in the report or presentation. Avance rallied 7% on the day amongst a general appreciation of the VLGC segment. As we enter the seasonally strong period from April to August, we simultaneously expect supply growth to turn negative. Add annualized demand growth of ~10% and we remain highly optimistic on the share price development over both the short- and long-term horizon. We reiterate our BUY recommendation and have a NOK 60 target price.
Never before have we been so optimistic across all sub-segments of the shipping/oil service sectors simultaneously as we now are for 2018. All segments have either just entered the expansionary phase of the business cycle, or will experience the inflection point in 2018. Thus, we find ourselves in an extraordinary situation where a potential 109% return over the next year is being dependent on careful capital allocation. In this report, we outline our top picks for 2018 in terms of timing, segments and shares, focusing on maximizing return/risk.
Although we cannot rule out another dead cat bounce, this year’s winter market has been disappointing. As we predicted, VLCC spot rates peaked at $32k/d, and volatility created opportunities for the attentive investor. However, oil tanker spot rates have averaged $11.7k/d QTD vs our forecast of $13.4k/d, with lower net supply growth (0.3% q/q vs 1.0%) offset by even lower implied demand growth vs our forecast (4.8% vs 7.1%). We downgrade the sector from HOLD to SELL as we see further downside risk to share prices and asset values ahead of the inflection point in mid-‘18E.
2020 Bulkers is the newly established dry bulk investment vehicle of Mr Tor Olav Trøim (50% ownership), in partnership with Titan Opportunities Fund (20%) and former Clarksons Platou partner Fredrik Halvorsen (20%). We estimate a NAV of NOK 16.3/sh, but base our NOK 31/sh target price on a weighted average of future asset price appreciation models after a 10% discount. We believe a small discount is warranted as there are still some road to be covered before realizing the potential value appreciation behind our forecast, including a likely equity raise in order to pay the next newbuilding installments in 3Q18E (or options declared in 1Q18E).
The company currently
The dynamics for LNG carriers have changed and the cyclical inflection point is definitively behind us as spot rates surge towards levels not seen in three years. We see utilization rising steadily towards the end of this decade, with corresponding improvements in earnings, vessel values and share prices. We reiterate our BUY recommendation on LNG carriers and highlight Flex LNG (TP 18) and GasLog (TP 22) as our top picks.
- Dong-A Spica & Dong-A Capella said to have been sold @ $48 each to two sperate Greek buyers.
- 10% below our current generic fair value for a similar vessel, which is under revision for downgrade.
- Consistent with our September report where we forecast asset values down ~10% by 2Q18E.
- Last comparable done was the 2018 resale RS Kaystros sold to Polembros @ $49m in late October.
- Key takeaway: Current asset values below current broker quotes + added downside risk as the Winter market draws to an end around 1Q18.
The 3Q17 report was a bit soft in our view, with average TCE of $9.6k/d vs our 10.7 forecast and G&A $2m higher than expected. Thus, EBITDA of $26m came in below our $35m forecast and consensus at 30m. EPS of -0.12 compares with our +0.02 forecast and consensus’ -0.02. No significant surprises in the report, but we lift our near-term estimates as the company reports 80% of fleet days in 4Q17 locked in at $12.6k/d (vs our $11.3 estimate). Although we see short term downside risk to shares from falling spot rates, significant price depreciation would represent an opportunity to BUY the share. We reiterate our 1y TP of $14/sh.DOWLOAD
- TCE at USD 9.2k/d vs our forecast of 13.5k/d (100% utilization basis).
- Opex at USD 5.2k/d (+13% q/q) vs our forecast of USD 4.6k/d.
- Above weakness somewhat mitigated by G&A at USD 1.3m vs our USD 1.6m forecast.
- EPS adj. -0.13 vs our forecast of +0.02, after adjusting for a USD 11.4m one-off related to debt repayment
- TP upgraded to USD 2.9/sh (from 2.7)
GoodBulk continues its rapid growth, acquiring seven modern Capesizes from CarVal (Cargill) with options for a further six. We believe the deal is highly accretive to current GoodBulk shareholders (NOK 5.7/sh), with the optionality on six more vessels adding upside. Comparative to recent S&P transactions, we estimate a steel discount of 6-13%. We reiterate our BUY and raise our TP to 157 (153).