With about two-thirds of major publicly listed owners having reported second-quarter earnings to date, Streetwise is taking time out to assess the good, and in some cases the not so good, to have emerged so far.
We spoke with a handful of analysts on a confidential basis to get their candid takes on the companies they write about, and in some cases the emerging trends.
While there has not been an earnings-season blockbuster such as a company takeover to liven things up, let’s take a look around the corporate landscape to see what is drawing attention.
We’ll start this week with the tanker space, which of the three major sectors has the most to feel good about at present.
Euronav: We’re not giving out grades as part of this exercise, but if we were, the Belgian tanker giant has probably earned an “incomplete”, and that is because so much about its future remains up for grabs.
While interim chief executive Lieve Logghe told TradeWinds that crude tankers remain the focus despite disagreements between major shareholders John Fredriksen (pro tankers) and the Saverys family (pro green diversification), what that actually means is anyone’s guess after the Norwegian tycoon’s failed merger efforts last year.
One analyst we spoke with named Euronav as his disappointment of the earnings season, not because of the results — they were quite good — but because he thought the company might give a clear indication that the standoff had been resolved, and there was none.
“I feel like the market was waiting for a big exhale event, and instead there was just a sigh,” he said.
But a second researcher did find some of his investor clients taking comfort for a few reasons. First, Euronav’s earnings beat analyst expectations. Even more important, spot fixtures for the current quarter, while down sequentially, were stronger than some had feared.
The third reason reflects the cloud of uncertainty hanging over the company: Euronav looks to be in no hurry to name a permanent CEO.
In the minds of some investors, that was a signal: a merger-takeover may still be in the cards. For an owner no longer trading with an acquisition premium since Fredriksen withdrew his merger offer, this was a signal to buy in.
Harken back to April 2022 when CEO Martyn Wade departed from Grindrod Shipping, with no move by the dry bulk owner to name a permanent replacement. Consolidation rumours flew, and sure enough Taylor Maritime emerged as the acquirer after a scrap with Genco Shipping & Trading and Eagle Bulk Shipping of the US.
A similar scenario here? Or maybe the stated rationale, that Euronav is expecting bumper-crop markets and doesn’t need to rush a move, just might be true instead.
Either way, the stock is up nearly 9% since earnings, among the best in the peer group.
Scorpio Tankers: Euronav provided some early momentum on the crude side, and Emanuele Lauro-led Scorpio was its counterpart in clean products.
Scorpio came into earnings talking about an “inflection point” in spot rates, underscoring the belief by taking a 5.3% stake in competitor Ardmore Shipping and another large stake in Oslo-listed peer Hafnia.
The Baltic Clean Tanker Index was at 704 the day Scorpio president Robert Bugbee spoke about inflection, up from 563 just two weeks earlier. It’s back just below 700 this week, so the jury is still out on near-term direction.
Still, Scorpio deserves credit for more than just rates momentum. Strong markets have helped it forge a remarkable transformation of its balance sheet, shedding more than $1bn in debt and buying back more than $582m-worth of stock since 1 January 2022.
How good has it been for Scorpio? Even perennial sceptics on the research desk at Deutsche Bank upgraded the company to a “buy” rating in late June.
Like Euronav, Scorpio’s stock also has been in demand since its report, rising more than 6%.
If and when the sort of inflection trend that Bugbee flagged up actually sprouts legs, Scorpio is now in a financial position to run, not walk. Stay tuned.
Other tankers: Streetwise plans to look at dry bulk and container ship trends next week, but frankly there’s not as much to cheer about in those sectors as there is for the tanker crowd, where other notable developments abound.
While Euronav had a strong quarter for operating rates overall, competitor DHT Holdings significantly trumped the Belgians on VLCC spot rates, bringing in time charter equivalent rates of $64,800 against $55,000.
Analysts said Euronav was in line with expectations, chalking up the difference to a sterling quarter from Svein Moxnes Harfjeld’s chartering team, only about half explained by DHT’s choice to install exhaust gas scrubbers while Euronav mostly shied away.
DHT also topped International Seaways’ VLCC spot performance of $52,300, but there was not much to complain about in the New York-based owner’s second quarter.
After historically lagging tanker peers in share performance against net asset value, Seaways has steadily been making strides with an approach to capital allocation that is the best balanced in the sector.
An owner like Scorpio has been focused on paying down debt and repurchasing stock, with Bugbee saying recently that bigger dividends “can wait”.
Management at Ardmore Shipping has focused on boosting its dividends, but recently batted away suggestions that it should step up share buybacks.
At Seaways, investors have been able to get a little bit for each column: debt repayment, a small regular dividend, substantial special dividends and share buybacks.
The approach isn’t flashy but looks increasingly effective ahead of a presumed market run, and it’s getting noticed.
In a client note entitled Investor Delight: A Balanced Approach to Value Maximization, analysts at Clarksons Securities said this: “This tune is harmonious for investors, but Seaways stands out for its balance in aligning significant shareholder returns (around 50% of EPS) with ongoing debt reduction and fleet rejuvenation.”
More ship finance news
Greek tanker owner Performance Shipping has regained trading compliance with the Nasdaq exchange on the basis of a natural increase in its share price rather than a reverse stock split. Click here to read.
Cash from Pan Ocean may be used by its majority shareholder to help fund the acquisition of domestic shipping rival HMM, say analysts. Harim Group, which has a 54.7% stake in Pan Ocean, is said to be among four companies looking to acquire HMM. Click here to read.
Celebrity investor Michael Burry is trying his hand again at shipping investments, picking four New York-listed owners that were not among his initial choices in 2021. Click here to read.
