The recent rally in LNG and LPG carrier rates has boosted Navigator Holdings and GasLog shares to near fair value, Evercore said in a note arguing the sectors will go in opposite directions in 2021.
Arbitrage spread for the cargoes, coupled with Panama Canal congestion and a chilly winter sent rates skyward at the start of the winter, boosting equity values with both New York-traded companies nearing price targets, the investment bank said on Wednesday.
The jump — Navigator to $9.73 on Wednesday and GasLog to $3.98 — prompted Evercore to downgrade both companies to "in line" from "outperform" with price targets of $5 and $12 respectively.
"A recent spike in both LNG and LPG vessel spot rates that began in the early winter has spurred on equity values for much of our LNG and LPG shipping coverage," analyst Sean Morgan wrote.
"However, while the strong start to January 2021 has been a boon for EPS [earnings per share] in the first quarter, we expect mean reversion will continue to ease spot rates back to more sustainable levels."
Morgan wrote that both LNG and LPG carrier rates spiked in early January before cooling off in recent weeks as arbitrage between US prices and those in Asia and Europe tightens.
Slow supply growth
As the year wears on, he said, LNG rates are expected to moderate. LNG carriers will likely be hit by slow supply growth and a large orderbook, pushing down levels across the board with 145,000-cbm ships falling an estimated 19% to $33,000 per day for the year.
For LPG carriers, the orderbook is not expected outpace demand growth despite the blockbuster rates, which typically send owners scrambling to shipyards. Evercore forecasts a 13% growth in VLGC rates for 2021, revising its past estimate upward $5,600, to $48,800 per day.
In addition to the downgrades for Navigator and GasLog, Evercore raised the price target for Dorian LPG to $16 from $12 and GasLog Partners' to $4 from $2.
Dorian LPG shares were down $0.35 to $11.10 at lunchtime on Wednesday while GasLog Partners shares were up $0.07 to $3.38.
