Investment bank Jefferies is raising its VLGC rates forecasts as it slapped a “buy” rating on US owner Dorian LPG.
Calling the New York-listed company “the gift that keeps on giving”, analysts Omar Nokta and Jaeyoung McGarry believe more transit restrictions at the Panama Canal are a “game changer” for the sector and its earnings.
Jefferies had downgraded the owner in August due to the chance to lock in gains after the stock reached all-time highs, ahead of the typically weak winter period.
But it has now increased its target price to $50 per share, against a trading price of $42.53 in New York on Tuesday.
The sector is already underpinned by strong US liquids export growth, which is likely to continue next year, the analysts point out.
Ship supply is tight, with spot rates jumping from $115,000 per day to $130,000 in recent days.
And the Jefferies team said: “The supply crunch is not due to showcase itself until February when canal daily transits fall to 18 ships from 24 currently and 31 prior to the changes.”
As opposed to container ships and LNG carriers, VLGCs do not have pre-reservation rights and thus face excess delays, Nokta and McGarry pointed out.
A normal one-way voyage between the US Gulf and Asia is 30 days through the canal, but ships are likely to be rerouted around Africa, which will take 44 days.
The forward freight curve points to Dorian LPG generating more than $10 per share of free cash flow in 2024, Jefferies said.
Curving upwards
The 2024 VLGC forward freight agreement curve rose gradually from $20,000 per day early this year to $50,000 by the end of October.
And this jumped to $80,000 per day three weeks ago and has held firm, the analysts added.
Jefferies is raising its VLGC rate forecast to $75,000 per day for 2024, up from $45,000 previously.
This will lift Dorian LPG’s earnings per share to $8.67, from an earlier forecast of $3.68, the investment bank calculates.
