Shares in VLGC owners Avance Gas and BW LPG fell after Fearnley Securities downgraded them to “hold” from “buy”.
The Norwegian investment bank sees weak risk-reward for both companies as there are uncertainties on the upside to freight rates.
Analyst Oystein Vaagen said in a note that it is increasingly weary on freight versus last year’s bumper earnings, given pressure from supply and demand issues.
Vaagen cut his Avance Gas price target to NOK 140 ($13.30) from NOK 175. For BW LPG, the figure was dropped to NOK 155 from NOK 190.
Avance Gas plunged as much as 6.9% to NOK 128.80, while BW LPG lost 5% to NOK 129.30 on the Oslo Stock Exchange early on Thursday.
“Following larger than expected US inventory draws, low production growth in the US/Middle East and VLGC deliveries this year, we see risks to [consensus] estimates this year,” Vaagen said.
According to Fearnleys, fleet growth, low production growth and risk on exports result in a “weakening risk-reward in the sector for now”.
Fearnleys has lowered VLGC rate assumptions for the first half of 2024 to reflect run-rate levels through the first half but has left second-half estimates unchanged.
“One blackbox is obviously Panama congestion, but for now, an increasing number of ships are sailing through,” Vaagen said.
The Avance Gas stock rose sharply on Wednesday after its fourth-quarter report and bullish comments from management.
BW LPG will report fourth-quarter results on 29 February.
Vaagen said the fourth quarter and first quarter are expected to be “exceptional”, but “this is widely known” and there is pressure on first-quarter and full-year 2024 expectations.
