Cleaves Securities has come out with a bullish tanker market forecast as it begins coverage of US-listed product carrier giant Scorpio Tankers.
The Norwegian investment bank sees the sector set fair into 2025, with rates and earnings rising.
Analysts led by Peter Michael Christensen see substantial geopolitical risk amid global economic uncertainty.
But oil in transit continues at record levels and refinery margins and throughput remain elevated, they noted.
Tanker demand is forecast to expand by 6.4% this year, and another 3% next year, followed by 1.9% in 2025, the analysts calculated.
The lower orderbook and full shipyards mean fleet growth is expected to be only 3.2% in 2023, dropping to 1.5% the year after and 1.2% in 2025.
Fleet use will hover in the mid-90% range through 2025, Cleaves believes.
This should see a further uplift in rates, ship values and share prices.
Against this background, Scorpio Tankers is a “compelling investment case”, Christensen and his team said.
The owner has full scrubber exposure for its LR2s and MRs.
Cleaves is starting coverage with a “buy” rating and a target price for the stock of $77, 40% higher than the close in New York on Thursday of $54.85.
Scorpio “has capitalised on the booming tanker market, fortifying its balance sheet through significant deleveraging”, the analysts said.
The share is trading at only 74% of net asset value, against a peer average of 98%, and the company is showcasing strong free cash flow yields in the coming years.
There is “evident potential for further highly accretive share buybacks”, Cleaves said.
Net profit is tipped to come in at $616m this year and $727m in 2024, rising to $800m in 2025.
