Pareto Securities has upgraded shares in two prominent bulker owners as it identified light at the end of tunnel for the depressed market.
John Fredriksen’s Golden Ocean and Petros Pappas and Oaktree-backed Star Bulk were raised to buy from hold in a report today.
At the same time, Simeon Palios-led Diana Shipping was downgraded from hold to sell.
“Following Star Bulk’s recent equity issue, all the pure play listed dry bulk names in our coverage space have restructured except for Diana Shipping,” said analysts Eirik Haavaldsen and Oystein Dalby.
“We see upside in names with adequate runway as vessel values are set to move upwards on the back of improving spot rates and sentiment."
Haavaldsen and Dalby note demand growth has exceeded expectations since the horrible first quarter of 2016, while the sector’s orderbook it at a nine-year low.
“Demand is set to outpace fleet growth in 2017 and 2018 and we stick to our expectation of a gradual recovery 2017/2018 with both rates and vessel values expected to move higher,” they explained.
“Whilst earnings should be on the soft side, valuation looks attractive in most dry bulk names at the bottom of the cycle.”
The analysts explain Chinese coal imports are again growing and iron ore imports could break the one billion ton mark in 2016.
At the same time the dry cargo ordrebook sits at 12.5% of the trading fleet, the lowest level since 2003, and 15% of the ships in the water are 15 years or older, encouraging further scrapping.
Pareto’s numbers suggest that demand growth will outpace supply increases in both 2017 and 2018, bringing a “gradual improvement in spot rates”.
