Tanker stocks are falling across the board on European stock exchanges following downward revisions by respected analysts.
Frontline dropped as much as 3.2% in Oslo while Torm lost 4.4% in Copenhagen.
Both DNB Markets and Pareto Securities cut target prices for several tanker stocks on Wednesday.
Pareto said commodity shipping markets have disappointed – and tanker expectations are too high.
Eirik Haavaldsen, head of research at Pareto, said: “The lack of volume growth, weak refinery margins – and question marks around China have been weighing.”
The Norwegian investment bank reduced estimates for TCE rates and earnings.
“The estimate trend turned negative this spring, and the fourth quarter will be another disappointment vs. original expectations,” Haavaldsen said.
Pareto lowered rate forecasts by around 30% across all the tanker segments – which has a 10 – 14% negative impact on the full year 2024, it explained.
The bank made similar adjustments to 2025, with crude rates down 9-14% and product tankers down 7-17%.
“Our estimates are still below recent TC-levels, with several reports of strong VLCC, LR2 and MR fixtures recently,” he said.
Pareto generally kept recommendations at buy for the tanker space but have lowered target prices.
It prefers Frontline and Hafnia, which it sees as underperforming for no obvious reason of late.
“We continue to see best risk-reward in Frontline and Hafnia – both with no-nonsense dividend policies and stellar track records,” Haavaldsen said.
The new target price for Frontline is $26.5 per share. The stock traded around NOK 230 ($21) in Oslo on Wednesday morning.
The only stock downgraded to hold from buy was Torm. The target price was set at DKK 214 ($31). Shares fell to DKK 196 in Copenhagen.
Although rates have been lower than expected, the situation could change as Pareto sees potential for “geopolitical mayhem”.
Haavaldsen said: “The geopolitical instability currently seen, must surely be deemed ‘unprecedented’.
“Russia’s invasion of Ukraine, Houthi attacks in Hormuz, Israel’s war against Lebanon (and potentially Iran).
“All factors that would increase risk premiums (and inventory stocking) in normal markets – but so far with little impact on neither rates nor share prices.”
DNB reiterated a buy rating for Frontline but cut the target price to NOK 340 from NOK 345.
Analyst Jorgen Lian said in a note: “While current rates are within the normal range for the season, the expected winter market remains muted, in particular for the VLCCs.
“However, we still believe the recent volatility implies a fairly tight freight market with marked improvements to come once seasonal demand is reflected in crude flows.
For the third quarter, DNB assumes sailed-in VLCC rates of $50,400/day, Suezmax rates of $42,900/day and LR2 rates of $33,100/day, leading to an adjusted Ebitda forecast of $261.1m, 29% below consensus.
For 2025, DNB sees 2025 sailed-in TCE of $54,800/day for Frontline.
Hafnia’s, rated as a buy at DNB, was lowered to NOK 96 from NOK 105.
“Coming off a very strong first half, average product tanker rates remain fairly robust in a historical context,” Lian said.
“Furthermore, we maintain that tanker markets are set to improve towards year-end as seasonal demand picks up, while we expect 2024 tonne-mile growth is set to far outpace supply growth.”
DNB sees a 90% payout ratio, allowing for a dividend yield of 16% in the next 12 months.
Hafnia shares fell as much as 3.3% to NOK 68.9 in Oslo.
