Omar Nokta had taken a break from shipping research since March and investment bank Jefferies since 10 June, but they have returned together and with quite a bang.
Nokta has unleashed a 181-page report on the current state of shipping markets as he formally begins a new chapter as Jeffferies’ lead shipping analyst, initiating coverage on 24 US-listed owners.
Some quick takeaways :
Tankers rule
Jefferies likes the investment case for tankers the most, container ships least.
Size matters, but not the way you might think. The versatility of smaller ships is trumping the scale of larger ones in an age of supply-chain disruption and new, emerging trade routes.
Exhaust gas scrubbers matter too, and so do “eco” engines as shipowners grapple with higher fuel costs — those with scrubbers and eco vessels stand to significantly outperform those without.
All three major operating sectors — tankers, bulkers and boxships — have listed owners trading at a fraction of their net asset values, suggesting there is room for stocks to run from an investment view.
Nokta’s voluminous report signals Jefferies’ official confirmation that he is working for the bank. TradeWinds has reported since 5 April that Jefferies had poached the analyst from Clarksons Platou Securities to fill the seat left by Randy Giveans, who departed after 11 years to join Navigator Gas Holdings.
After taking a three-month gardening leave, Nokta started at Jefferies last week and wasted little time initiating coverage of the sector.
Jefferies had been forced to drop shipping coverage on 10 June after both the junior analysts who had supported Giveans also left for other jobs.
Beating the market
Nokta noted the improved earnings power in most operating sectors over the past two years, which has translated into shipping stocks logging a 31% gain so far in 2022 compared to a 17% decline in the S&P 500.
“We view those with modern fleets as well-positioned to capture higher, outsized earnings going forward, and they are also one-step ahead as the industry prepares for stricter regulations,” Nokta told clients.
Jefferies likes the tanker sector most and, within that group, taps crude player DHT Holdings, diversified operator International Seaways and product-tanker specialist Scorpio Tankers as his top picks.
Dry bulk comes next, with Nokta’s top picks being US owners Eagle Bulk Shipping and Genco Shipping & Trading alongside Greek owner Star Bulk Carriers, the market’s largest player.
Nokta calls the gas sector “the biggest beneficiaries of Europe’s now fast-tracked transition away from Russian supply, especially LNG”.
Flex LNG is his top choice, with Dorian LPG and Navigator Holdings the picks in LPG.
With container ship owners nearing the end of a record rates run, the sector is Jefferies’ least favoured but the choices are Danaos Corp, Global Ship Lease and Navios Maritime Partners.
Nokta maintains one notable trend is that the versatility of smaller ships is being valued over the sheer scale of larger ones amid changing market dynamics.
“This first emerged early in 2021 with the dry bulk segment, where the larger capesize vessels earned strong rates but were eclipsed by the smaller panamax and supramax classes for long stretches,” he wrote.
“The same dynamics are currently at play in the tanker sector, where traditionally the fortunes of the VLCC sector affect the other segments, including the smaller crude tanker classes and the product tanker fleet,” Nokta wrote, while current trade spurred by Russia-Ukraine supply dislocation favours smaller tankers, especially product carriers.
