Norwegian investment bank Cleaves Securities is very bullish on bulker prospects as it recommends investors take a position in Greece’s Safe Bulkers.
The company has started coverage of the New York-listed shipowner with a “buy” rating and a $7.10 target price per share.
This compares to $3.57 per share on Friday in the US, with Cleaves seeing “significant upside” to the stock.
The investment bank urged investors to "seize the opportunity" to invest in a fleet comprising 44 panamax, kamasarmax and capesize ships.
"Although the company is actively renewing its fleet, it has low leverage [and] substantial dividend capacity," Cleaves said.
Analysts Peter Michael Christensen and Jonas Olsen added they have a very positive view on bulker markets over the next two to three years.
They argue healthy demand growth is being spurred on by firm Asian requirements, particularly as China reopens after Covid shutdowns.
There is also "very low supply growth" in the dry cargo sector, with the newbuilding orderbook close to all-time lows.
“We see Safe Bulkers as a very undervalued company,” the analysts said.
Fleet use to rise
Fleet utilisation could increase from 87% this year to 91% by 2026, they calculated.
"Coal imports have shown incredible strength in the first four months of the year, being an all-time high in Q1," the duo said.
Cleaves is forecasting global tonne-mile demand for coal to grow 3.8% this year, 0.9% next year and 1.5% in 2025.
Dry bulk cargo demand will increase 2.5% in 2024, 2.9% in 2024 and 2.4% the year after that, the analysts estimate.
This compares to fleet expansion of 2.9% in 2023, with the figures for 2024 and 2025 at 2.3% and 0.5% respectively.
Cleaves is predicting earnings will rise by 50% for capesizes by 2025, increasing asset values and share prices.
“The company can easily pay out 50% of net income going forward, but has the potential for much more,” Christensen and Olsen said.
They are expecting adjusted net profit of $120m for 2023, rising to $146m in 2024. By 2025, this figure could reach $224m and $269m the following year.
