Bulker stocks in Oslo have jumped in the past six months but now it is time to sell, according to DNB Markets.
The Norwegian bank downgraded both Golden Ocean and 2020 Bulkers to “sell” from “hold”.
“Recent strength in the dry bulk market combined with an even stronger share price performance leaves current pricing with material downside potential, in our view,” analyst Jorgen Lian said in a note.
The main downside risk is the uncertainty of the Chinese import demand.
“We returned from our recent visit to China with a sense that troubles could be lining up for dry bulk,” Lian said.
According to DNB, a lasting downturn in Chinese real estate for another two years should hamper steel demand and iron ore import demand.
Additionally, the vast coal inventories look to be peaking, while year-on-year comparables for hydropower leave downside risk to coal import demand.
DNB sees a “fragile situation” if momentum shifts as very strong asset values are supporting elevated net asset valuations.
Lian adjusted the target price of John Fredriksen-backed Golden Ocean to NOK 140 ($12.9) from NOK 142.
Decline in Oslo trading
Golden Ocean shares fell as much as 3% to NOK 154 in Oslo on Monday.
DNB sees a first quarter Ebitda of $115m, 3% below Bloomberg consensus of $119m.
The first quarter report will be published on 31 May.
Lian raised the target price of 2020 Bulkers to NOK 154 from NOK 150.
Shares were down about 3% to NOK 166.
DNB sees an adjusted Ebitda of $13.5m for the first quarter.
2020 Bulkers will announce results before the market opens on 8 May.
Later on Monday, DNB also cut the recommendations for Star Bulk Carriers and Genco Shipping & Trading.
Star Bulk was downgraded to “hold” from “buy”.
But DNB raised the target price to $27 from $25 on recent market tailwinds.
“However, fundamental Chinese import demand continues to be in question, while we believe the elevated asset values and improved [price to net asset value] create a precarious situation for the months ahead. Hence, we see a deteriorating risk/reward and remain materially below consensus for 2025,” Lian said in a note.
The DNB analyst sees a first-quarter adjusted Ebitda of $112.7m (8% below the consensus estimate $122.2m) and a dividend of $0.48 per share.
Genco was also cut to “hold”.
“While we believe Genco remains a discounted entry into dry bulk exposure at a [price to net asset value] of 0.77 times, the recent share price rise and freight market strength have put more focus on the downside risks to our dry bulk sector outlook,” Lian said.
The target price was adjusted to $22.60 from $22.50.
“Genco is set for a solid first half of the year on our estimates, but we find the risk/reward less attractive medium-term,” Lian added
