DNB Markets has raised its rating on the tanker market suggesting VLCC rates could double in the next two years, leading resale values to break back above $100m by 2020.
Analysts led by Nicolay Dyvik placed a buy rating on the sector and upgraded shares in Frontline, Euronav, DHT Holdings and Gener8 Maritime to the same level.
Frontline’s Oslo traded share shot up by close to one tenth in early trading, while Euronav was up over 3.5% in Brussels at the time of writing.
Dyvik told investors in a video presentation stocks were down 50% on average since DNB downgraded tankers in April 2016.
“We think it’s time to buy again,” he said, noting the market was oversupplied by around 55 VLCCs right now.
Buying at the bottom
DNB’s revised rate forecasts project VLCCs will earn $22,000 per day this year, rising to $41,000 per day in 2020.
Asset prices are expected to follow, with 30% upside seen on a VLCC resale by the end of the decade.
“Looking at the past 20 years VLCC resale prices have always bottomed out in the low $80s,” Dyvik said.
“It happened in 2000, 2002, 2013 and it looks to have also happened now in September 2017 where they leveled out at $81m.
“They are now at $84m. We expect them to increase to $92m in 2019 and $107m in 2020.”
Dyvik said investors who believe the crude market will turn soon should buy Frontline.
“If you are skeptical about the turning point, then you should buy Euronav given its low leverage,” he added.
“If you like the combination of high operational leverage, good asset exposure and modest leverage DHT would probably be the one to buy,” he concluded.
