Everything came up roses for tanker giant Frontline in 2023, but not even John Fredriksen’s flagship could overcome the riches the LPG market bestowed on Dorian LPG in the fourth quarter.
The gas market rally fuelled by drought-related Panama Canal disruption and rising US Gulf exports rocketed Dorian past Frontline as the top-performing shipping stock under coverage of investment bank Jefferies for the year past.
Jefferies lead shipping analyst Omar Nokta has called Dorian “the gift that keeps on giving”. The Connecticut-based company certainly rewarded investors in 2023: its shares gained 131.5% on the year and 152.6% when taking into account dividends.
Both gains easily topped the pack of 27 Jefferies stocks, most of which are US-listed.
Frontline did come second with a yearly gain of 65.6% and a return of 88.8% with dividends.
As TradeWinds has reported, Frontline led the pack at the end of the third quarter. But Dorian’s monster gain of 52.7% in the last three months dwarfed the tanker owner’s 6.8% climb to clinch the stocks crown for the full year.
Dorian started the year at $18.96 per share and ended at $43.87.
“Even though we lived through that performance, I didn’t realise how strong it was until we ran these numbers,” Nokta told TradeWinds.
“This is a company that’s been doing OK since 2020 but it really didn’t draw that much investor interest until this year. Now there are a lot more energy-focused and generalist funds looking at Dorian, largely on two themes: the US export story and Panama Canal disruption.”
Dorian had both things working in its favour in the fourth quarter, highlighted by a 30 October reduction by canal administrators in the number of vessels making daily transits, owing to shallow drafts because of low rainfall.
“One day Dorian was trading in the high $20s and three days later it was in the high $30s. Trading volume spiked in mid-October and has remained elevated since,” Nokta said.
The reduction in canal transits has disproportionately affected VLGCs like those owned by Dorian. Their lower priority cut transits from four or five per day to one or two, rerouting them on longer voyages and fattening hire rates.
As with all dislocations, the question is the duration. But with the dry season approaching in Panama over the next six months, it appears premium rates will continue for some time, according to Nokta.
Wider trends
In a look at general results, 21 of the 27 Jefferies companies logged gains in share price. The average gain was 12.6%. This was lower, however, than the 26.3% gain by the S&P 500.
Gas operators technically were the top-performing sector at 47.4%, but with only three such companies under Jefferies’ coverage, this was distorted by Dorian’s outsized returns.
LPG player Navigator Holdings added 21.7% on a share-price basis, while Flex LNG lost 11.1%.
For a wider perspective, TradeWinds has reported that LPG stocks led performance on the Oslo stock exchange as well last year, when Avance Gas and BW LPG were the biggest winners.
The real stars of the Jefferies index were tanker stocks. Ten listings averaged a share gain of 28.3% on the year and a return of 41.5% with dividends.
To emphasise the point, the sector placed three of the top five performers in share gain. Following runner-up Frontline were Teekay Tankers with a 62.2% gain and Oslo-listed product tanker owner Hafnia fifth at 39.3%.
The showing was even better with dividend returns, as tankers swept the top five after Dorian. Following Frontline were Teekay Tankers (67.9%), Hafnia (62.2%) and Herbjorn Hansson’s suezmax specialist Nordic American Tankers (53.3%).
The general driver for tankers was old-fashioned supply and demand, Nokta said, with the lowest orderbook since 1970 trumping even the negative effects of Opec+ production cuts for VLCC owners.
“With almost a static fleet and oil-consumption growth forecast over the next few quarters, it more than offsets the production cuts,” he said.
For top performer Frontline, investors moved into the stock in the year’s first half when it became clear Fredriksen was walking away from the proposed merger with Belgian shipowner Euronav that was offered at a premium to net asset value.
They reacted again in the third quarter to news that Frontline would get 24 VLCCs in a compromise deal without paying the premium, Nokta said.
Dry guys rebound
Operators in the dry bulk trade and container ship lessor sectors managed to salvage profits on the year when that once looked unlikely. Both sectors were in the red on the year when TradeWinds reported on nine-month results on 12 October.
The dry bulk sector owners gained an average of 8.8% in share price and 16.4% with dividends. Greece’s Diana Shipping was the only loser among the six Jefferies shipowners. A fourth-quarter market rebound made the difference, Nokta said.
“The market recovery in the fourth quarter was beyond people’s expectations. There was some seasonality in that the fourth quarter is almost always stronger,” he said.
“The surprises were the strong iron ore demand not just from China but the rest of the world, and higher steel prices globally that just encouraged more transport of iron ore.”
On the container-lessor front, Greece’s Danaos had what Nokta called “a sneaky good year” with a 40.6% gain in share price ranking fourth overall. Six owners in the sector scored an average gain of 16.7% in share price and 21.7% with dividends.
It became evident as 2023 unfolded that container liners were unable or unwilling to break long-term contracts with the lessors, removing a fear hanging over the sector, Nokta said.
Things didn’t work out as well for the three liner operators under Jefferies’ coverage. Israel’s Zim was the worst performer of all 27 stocks with a 42.6% drop in share price, while Germany’s Hapag-Lloyd and Danish giant AP Moller-Maersk also lost ground at 21.3% and 8.6%, respectively.
Even this sector was looking up, however. Nokta said he has been besieged by investor enquiries in the first days of the new year about the effects of terrorist attacks on shipping in the Red Sea that are diverting cargoes away from the Suez Canal.
The disruption is adding tonne-miles and profits for the liner players and stoking investor interest.
Top bet for 2024
Pressed on a leading pick for performance in the new year, Nokta opted for New York-listed product tanker giant Scorpio Tankers, which has worked furiously to pay down debt and bolster its balance sheet. Scorpio gained 13.1% in share price last year and returned 15% with dividends.
“We think they’re going to transition to using their substantial incoming free cash flow to return money to shareholders, and that’s a game-changer,” Nokta said.
