Evermore Global Advisors co-founder David Marcus believes conditions in the crude tanker market today are similar to those experienced in dry cargo when the investor first entered shipping in early 2016.
“We always saw we are nibblers not gobblers. A gobbler takes big bites," he says. "We take small bites as we do not know where the bottom is.”
Evermore's first taste of tanker stocks has been with John Fredriksen’s Frontline. While Evermore is running at a loss with this investment and tanker stocks have “fallen off a cliff”, Marcus likes the look of the industry fundamentals, supported by higher scrapping activity.
“We decided we really like Frontline,” he says. “We believe John Fredriksen, who is the main shareholder, is an interesting character in that investors love him or don’t love him. They pick a side.
“This is one of the great value creators in a whole host of maritime businesses over a long period of time. He has had ups and downs in a lot of his investments, but, hey, there is a reason why he is one of the richest guys in the world. He has created a lot of value.”
While Marcus says Frontline is currently “completely out of favour” with the investor community, Evermore has built a stake of about 3%. “Our view is you have got to buy them when they hate them,” Marcus continues. “They hate them, so we are buying.”
He explains Frontline has one of the lowest cash breakeven levels in the crude tanker market. “That answers our first question, are they going to be a survivor?” he says. “We think they will not only be a survivor, they are a consolidator.”
When those acquisitions come, the investors will return to rediscover the company. “Right now, whenever we talk to investors they say 'Frontline is yesterday’s news',” Marcus says. “Again, that is good news for us, because as independent thinkers, if nobody is looking at it we should take a fresh look.”
Evermore started to get to know Frontline Management chief executive Robert Hvide Macleod over a year ago. “Do I talk to Robert and say, ‘I’m excited we have lost so much money’? No. He knows we are down but he knows we are long-term investors,” Marcus says. "We believe in him and in John Fredriksen, that in the long run they are going to manage their part of this industry effectively.”
Such is his confidence in the stock, Marcus believes he may end up asking himself why he did not buy more shares during the present window of opportunity.
“What drives people to start loving Fredriksen again? When he starts making them money," Marcus says. "All of a sudden they will say they have always been a supporter, which is not true.
“We have made our first investment in Frontline because our view is you are getting it at a valuation that is compelling.
“I feel like we are not competing with anybody to buy it. Nobody seems to care right now and that’s the time to buy.”
