After years left out in the cold, most dry bulk stocks are finally trading at a premium to their net asset value (NAV) and attracting the interest of investors.
But Oslo-based investment bank Cleaves Securities said it expects bulker prices will rise and close the gap between share prices and NAVs, which implies a short-lived window for bulker owners to exploit this disconnect by buying vessels using their shares at NAV.
However, share prices are expected to stay firm and could even see another major boost, head of research Joakim Hannisdahl said during a Cleaves webinar on Tuesday.
Daily turnover of the dry bulk shipping stocks within Cleaves' coverage has increased by more than 100% over the past few months, which he said shows a "large" influx of capital into the sector.
"Besides, obviously, fantastic fundamentals, we also think this [influx] is driven by post-pandemic positioning — 'generalist' money moving into the segment trying to do the post-Covid commodity play and positioning themselves — and I think that's a very wise move," Hannisdahl said.
"But this is what happens whenever we see a lot of generalist money moving into shipping, which by all means is a fairly small market segment or a small sector. You suddenly see big movements, both in price and turnover."
Lessons from recent history
The market right now feels a lot like it did during the first quarter of 2017, Hannisdahl said.
"In early 2016, there were a lot of concerns around the Chinese economy," he said. "And that kind of led to weak asset prices but share prices performed quite well."
He added that dry bulk stocks were trading at large premiums to NAV throughout 2016.
Share prices at time moved ahead, then asset prices closed the gap as companies used their premium shares to buy ships, he explained.
Hannisdahl said he sees the same dynamic playing out in today's market, where companies like Star Bulk [Carriers] and Eagle Bulk [Shipping] have acquired ships using their "premium" shares at NAV.
"Last time that led asset prices to rise, [share] prices stayed pretty much the same and then suddenly the premium to NAV was gone," he said. "We think something similar will happen this time around.
"[Share] prices will most likely not come down, it's net asset values that will come up and close the gap, before we see another push in [share] prices."
Hannisdahl added that a further boost to dry bulk stock prices could come earlier than expected, given the massive capital inflow into the market.
Cleaves has calculated a potential 18% upside in asset values for five-year-old capesize vessels, based on today's one-year time-charter rate, which is around $18,000 per day.
Five-year-old kamsarmaxes have a potential 25% upside in values, and ultramaxes of the same age could see their asset prices rise by up to 29%, according to calculations based on current rates, Hannisdahl said.
He added that Cleaves expects one-year time-charter rates for capesizes to reach up to $38,000 per day within the next two years, which could cause asset prices to rise by more than 50% compared to current levels.
Cleaves' top stock picks
Dry bulk stocks have been performing so well that Cleaves plans to launch a project of its own within the segment, but Hannisdahl said it was too early to talk about it, adding that it should be ready "within a short amount of time". He told TradeWinds it would not be an exchange-traded fund.
Cleaves has rated dry bulk stocks in general as a "buy" and its top picks are bulk carrier owners 2020 Bulkers, Golden Ocean Group and Genco Shipping.
Hannisdahl said newcastlemax specialist 2020 Bulkers is Cleaves' top pick in dry bulk shipping, thanks to its "investor-friendly policies" and "top-notch fleet".
Cleaves forecasts a 64% upside for the company's share price, which closed on the Oslo Stock Exchange at NOK 73 ($8.64) on Tuesday.
The bank sees even higher potential upside for compatriot bulker owner Golden Ocean Group, which Hannisdahl commented is "trading at an unusual discount to its peers".
Cleaves sees scope for a 73% hike in Golden Ocean's share price from current levels. The stock closed in Oslo at NOK 55.8 on Tuesday.
Hannisdahl said Genco's shares are currently the cheapest of any of the liquid stocks, trading at $10.32 on the New York Stock Exchange on Tuesday.
He said Cleaves sees a potential 55% upside for the stock, down from the 84% Cleaves projected in January.
This article has been updated to reflect the fact that Cleaves has confirmed it does not plan to launch an exchange-traded fund.
