The fundamentals-driven tanker recovery is fully underway, DNB Markets said as it boosted ratings for nearly all the tanker owners that the investment bank covers.
Analyst Jorgen Lian upgraded shares of DHT Holdings, Euronav, Frontline and Teekay Tankers to “buy” and reiterated its “buy” rating on Scorpio Tankers. The upgrades came in a note in which he declared that the market has “solid foundations” following nearly two years of putrid earnings.
The only company in Lian’s coverage universe that did not receive an upgrade was Hunter Group, which sold the last of its VLCCs in June. He reiterated a “hold” rating on the company’s shares.
“The elusive tanker market recovery was boosted by events in [the first half], but has been underway since 2020. With our assumed continued recovery in H2, we now see considerable upside potential for many of the stocks we cover,” Lian said.
“As the earnings inflection point appears to be nearing, we have upgraded most of them to [buy].”
For crude tankers, US long haul and Middle East Opec exports would be key, with fleet growth at an estimated 2.9% through 2025, he said.
Product tankers were tipped to continue benefitting from refinery dislocation, plus estimated fleet growth of just 3.1% through 2025.
Both groups would continue benefitting from the trade reshuffling that began in the wake of Russia’s invasion of Ukraine, with the shifts helping to boost crude demand by an average of 5.5% and product tanker demand by an average of 3.8% through 2025.
“We see our key utilisation measure reaching its highest level since 2016 for crude tankers by 2025 and since 2007 for product tankers by 2024,” Lian said.
He said VLCCs should earn $41,400 per day next year, $54,400 per day in 2024 and $60,700 per day in 2025. MRs are forecast to rise from $23,600 per day next year to $26,800 per day in 2025.
The improvement in rates would also boost asset values, with a 10-year-old VLCC expected to jump in value by 20% to $68m and a 10-year-old suezmax 14% to $48m. Aframaxes will stay largely flat.
A 5-year-old MR is expected to rise 20% to $40.2m, a 10-year-old MR 23% to $30.8m and a 15-year-old MR 20% to $19.8m. A 15-year-old LR1 is tipped to have the biggest percentage increase, jumping 29% to $23.2m.
DNB now has a $9.90 target price on DHT shares, a $20.20 target price for Euronav, NOK 140 ($14.53) for Frontline and $31.10 for Teekay tankers.
