New York-listed Scorpio Tankers is already shipping’s best-performing stock of 2022, with a 220% increase year to date, but US-based analysts think it still has some room to run.
Veteran researchers Jonathan Chappell of Evercore ISI and Omar Nokta of Jefferies both increased price targets and earnings estimates for the product tanker giant as the company gave a wide-ranging update on its finances and market outlook.
With Scorpio shares trading around the $42 mark, both analysts set a new target of $57. Scorpio revealed it had further reduced pricey debt and locked in robust hire rates for the current quarter.
Nokta pushed his price target from $50 previously in a market update just before the Scorpio announcement. He reiterated the $57 figure afterward. Chappell bumped his target up from $55 following the disclosures.
“Actions still speaking loudly,” Chappell remarked in the headline of his client note.
As TradeWinds has reported, Scorpio is buying back two LR2s, four MRs and two handymaxes as part of sale-and-leaseback contracts.
All were financed through 2018 sale-leaseback deals that carried interest between 360 and 370 basis points above Libor.
The product tnaker owner wipes away costly debt of $133m while cutting breakeven costs by $665 per day per vessel across the fleet.
Scorpio also extended its guidances for LR1s, MRs and handysize tankers at robust levels for between 74% and 92% of available days.
Scorpio revealed it has chartered out the 110,000-dwt LR2 STI Lombard (built 2015) for three years at a rate of $32,750 per day.
Evercore raised earnings per share (EPS) expectations for the current quarter to $4.35 from $3.64, to $9.73 from $8.89 for full-year 2022, and to $6.86 from $6.39 for all of 2023.
Jefferies increased EPS estimates to $3.90 from $3.45 in the current quarter, and to $9.54 from $9.02 for the full year.
Nokta reacted to Scorpio’s announced rate on the STI Lombard.
“Liquidity in the time charter market has remained elevated for the past three-to-four months, and rates are pushing higher,” he wrote.
“We would not be surprised if Scorpio’s next agreed time charter is at an even higher rate. It should be noted that the latest agreed-upon term rate of $32,750 per day is above any annual spot market LR2 average since 2008.”
Scorpio president Robert Bugbee and commercial director Lars Dencker Nielsen discussed the improved market on Wednesday during an online briefing hosted by BTIG analyst Greg Lewis.
“There’s plenty of activity,” Dencker Nielsen said when Lewis asked him whether the STI Lombard fixture reflected a one-off or rather a deeper market.
“We’ve been dipping our toes into this, making sure we choose the right counterparty. It is not difficult today to do multiple numbers of time charters, with three-to-five years easily obtainable.”
Charter opportunities may not be as advanced yet in MRs, Dencker Nielsen and Bugbee said, but could be in the next quarter.
“One big surprise to me is that we’ve had such high refinery utilisation....and yet international inventories have just gone nowhere,” Bugbee said.
“They’re still as low as they were before [higher utilisation], and in some cases they’re even lower. As we go into winter, no effort has been successful to build inventories across the world.”
