A tanker stock rally is set to continue, according to Fearnley Securities.
It reiterated a “buy” for the whole sector, and all 11 tanker stocks in its coverage have the same recommendation.
“We continue to argue equities sit with solid upside into what we expect will be a long-term tanker market upcycle,” analysts Oystein Vaagen and Fredrik Dybwad said.
Going into the earnings season for the first quarter, they prefer product tanker names.
Hafnia and Scorpio Tankers are their top picks.
“We expect 1Q earnings to come largely in line with expectations, though 2Q estimates should significantly rise, particularly for product and midsize crude owners,” they said.
The Red Sea disruptions and the war between Russia and Ukraine have supported product tanker rates.
“Disruptions look like they’re here to stay, which should imply product freight strength over the seasonally weaker refinery maintenance period,” the analysts said.
In the longer term, Fearnleys sees best risk-reward in crude tanker owners.
The top picks are Frontline, DHT Holdings and Okeanis Eco Tankers.
“Longer-term, however, we reiterate our positive bias towards VLCCs due to a potential reversal of Saudi cuts, limited fleet inefficiencies, positive tonne-mile drivers, as well as a largely negligible orderbook,” the analysts said.
The VLCC names have a good upside and lowest downside potential in terms of freight and asset values, they argue.
For 2024, the Norwegian investment bank increased estimates to reflect higher-than-expected run-rate earnings through the second quarter for product and midsize crude tankers.
It increased VLCC estimates by 4% to $55,000 per day, aframax/suezmax estimates by 10% and product rates by 6% on average.
Fearnleys highlighted “impressive market tailwinds from a supply perspective”.
It said the confirmed orderbook stands at 7.9% for the tanker fleet and about 9% when adding rumoured orders and options.
The analysts said “low fleet growth is largely a certainty through 2027, even with no scrapping, as there has been logged newbuilding delivery for 2028, suggesting that 2027 slots are filling up”.
They believe there is “strong support for modern values across the space”, adding: “This is further backed by solid [time charter] enquiries to back up what has now become historically high asset values.”
Long lead times, high financing costs, as well as elevated earnings have boosted secondhand prices relative to newbuildings, according to Fearnleys.
“Barring any macroeconomic downturn, we expect [newbuild] prices to remain elevated and supportive of asset values,” it concluded.
