A slump in bulker values contributed to investment bank BTIG’s decision to slash price targets for three New York-listed bulker owners, although he kept his “buy” ratings on the shares.
Analyst Gregory Lewis trimmed his 12-month targets on shares of Eagle Bulk Shipping, which focuses on supramaxes and ultramaxes, to $52 from $70, which is still above Friday’s price of $43.76.
He also dropped his target for the John Fredriksen-backed Golden Ocean Group from $14 to $10, which still offers a premium to the current $7.18 price tag.
And he sees New York-headquartered Genco Shipping & Trading shares rising from Friday’s $13.43 to a new target of $20, which is down from his prior $22 bet.
The cuts are partly fuelled by 5% to 10% drops in values of five-year-old bulkers, since peaks in the spring and 10% to 15% slumps since last summer.
The plunges bring values to levels last seen in the second half of 2021, but BTIG suggested that there is more room for charter rates to fall as well.
Lewis wrote that a one-year time charter of a capesize bulker now stands at about $19,000 per day, down from $26,000 per day in late 2021, while a similar deal for a supramax is worth $11,000 per day, a drop from $24,000.
That points to the potential for asset values to drop another 10% to 15%, he said.
The mixed outlook from China, a major drive for the sector, was also a factor in the outlook cut.
“With China dry bulk demand still driving 40% to 50% of the global trade, lacklustre demand out of China has seen charter rates weaken and asset prices head lower,” Lewis said.
But the BTIG analyst believes spot rates are bottoming, and he described the supply picture as constructive.
The Baltic Dry Index, a barometer of the sector’s spot market, has slumped to 978 points on Friday from a 2023 peak of 1,640 in May, according to the Baltic Dry Index.
Dry bulk futures, however, are pointing to modest gains ahead given the concerns around China, Lewis said.
“Bottom line: rate sentiment is lousy, and it will not take much to move the curve higher,” Lewis wrote. “We think the risk is skewed to the upside.”
Lewis is not alone in cutting his outlook for dry bulk shipping stocks. Stifel analyst Benjamin Nolan on Tuesday cut his price targets for Eagle Bulk and Genco, although he too is keeping a “buy” rating on the shares.
He pointed to concerns over China and the end of the Black Sea Grain Initiative as negative factors, although he said the orderbook remains at historically low levels.
“While supply does remain a favourable factor, we do not expect it to be enough to support a recovery in the second half of 2023,” he said.
