Scorpio Tankers is expected to report a quarterly loss that is 50% greater than the consensus estimates of Wall Street analysts in February.
But the equity analyst predicting the stumble remains relatively unfazed.
Deutsche Bank's Amit Mehrotra forecast the huge discrepancy in a client note. But he also said the projected shortfall has as much to do with stale projections from his fellow analysts as it does with the New York-listed tanker owner's tough fourth quarter.
Scorpio president Robert Bugbee declined to comment on Mehrotra's preview of the shipowner's earnings.
But he told TradeWinds on 26 January that investor interest had ramped up in the past few weeks amid a scenario of reduced clean-products inventories and rising distribution of Covid-19 vaccines.
Mehrotra's analysis sees the world's largest product tanker owner bleeding $1.30 per share when the analyst consensus view is a $0.85 loss.
This flows from an estimate that Scorpio will report Ebitda of just $30m against consensus expectations of $57m.
"We’re not overly concerned about this 'miss', as we view it as more reflective of outdated consensus and the strong operating leverage in the model," Mehrotra wrote, noting than a $1,000 change in market rates equates to more than $10m in earnings.
Deutsche Bank adds that "financing actions" to be announced with earnings could fatten Scorpio's cash position by about $70m from a cushion that would otherwise be in the range of $150m to $160m.
After achieving record-setting results in 2020's first half, based on an oil-supply glut and floating storage dynamics, tanker owners paid for it in the back half of the year with trough-level weakness.
The typical "winter market" rally was replaced by rates near or below operating break-evens — grim numbers that are likely to be reflected when Scorpio and tanker peers begin to report quarterly results in February.
Yet Mehrotra is keeping his "buy" rating on the stock while cutting the price target to $20 from $27 reduced outlook for asset values and NAV assumptions.
"There is no incremental equity value being created currently at [Scorpio], as operating cash flows are only enough to cover operating expenses, and debt commitments are being paid by existing cash," Mehrotra wrote.
"But we have to give management credit for managing this unprecedented decline in demand reasonably well, with the bridge to positive operating leverage largely intact."
While Bugbee would not address Mehrotra's forecast, he did emphasise positives.
"We are turning the corner," he said. "Surplus product inventories have almost gone. Vaccines are accelerating. Inefficient refineries close to the consumer are closing while new refineries in the Middle East for export are opening."
He argued, therefore, that tonne-miles are improving against constrained vessel supply.
"No wonder time-charter activity is improving," he said. "We have also seen a marked improvement in investor interest in the last three weeks."
Deutsche Bank had a strongly negative view of Scorpio's fourth quarter to begin with, as Mehrotra noted than his forecast of a $1.30 loss is actually a penny better than the $1.31 deficit he had pencilled in.
Scorpio closed trading on 26 January at $12.23 per share, up moderately from its 2021 starting point of $11.30.
