How times have changed when it comes to Deutsche Bank’s views of Scorpio Tankers in relation to tanker-market peers.
The product carrier giant is the bright spot in the bank’s new assessment of the tanker names under its coverage, continuing the bank’s transformation into a Scorpio bull and away from its one-time bearish views of the Emanuele Lauro-led company.
Scorpio won an upgrade on third-quarter earnings expectations as a result of stronger-than-expected rates in the clean tanker trade, and also a jump in Deutsche Bank’s 12-month price target to $62 from $55 per share on expectations of a winter market rally.
However, Deutsche Bank analysts led by Chris Robertson are pointing the other way on crude names, lowering third-quarter estimates for crude-tanker stalwarts Frontline, Euronav and International Seaways.
“Average spot [time-charter equivalent] rates in both the crude tanker and refined product tanker segments averaged lower [quarter over quarter] due to a combination of summer seasonality coupled with the implementation and extension of voluntary oil production cuts by Saudi Arabia and Russia beginning in August,” Robertson wrote, while noting that clean rates nonetheless topped his Scorpio estimates.
“We believe that tanker rates should strengthen seasonally into year-end as product inventories in the US and Europe remain below five-year averages and that the tanker market should be structurally supported in 2024 based on minimal fleet growth and expanding tonne-mile demand.”
On the plus side, Deutsche Bank is pushing Scorpio’s third-quarter earnings per share (EPS) estimate to $1.58 from $1.34 based on better-than-expected rates for both its LR2s and MRs.
While the investment bank was once known for its Wall Street-low price expectations for Scorpio, the EPS figure is now 7.5% above the Bloomberg consensus estimate.
“We believe that average product tanker rates will be supported above cash breakeven levels, allowing the company to further delever and improve its balance sheet. Additionally, we believe that the company will continue to swap out higher-cost sale-leaseback financing with more traditional bank debt in the coming quarters,” Robertson wrote.
Scorpio previously reported third-quarter rates of $27,000 a day for 41% of its open LR2 days and $27,000 for 37% of its open MR days.
On the crude side, Frontline took the biggest hit against Deutsche Bank’s earlier projections with a 28% cut to $0.45 per share from $0.63.
Frontline previously reported third-quarter rates of $53,200 a day for 75% of its open VLCC days, $61,700 a day for 67% of its open suezmax days, and $52,900 for 57% of its open aframax and LR2 days.
Deutsche Bank now expects Frontline to declare a quarterly dividend of $0.36 per share, representing 80% of net income. That figure would trail the $0.80 paid per share for the second quarter.
New York-based diversified tanker owner International Seaways sees a 16% cut to its earnings estimate, falling to $1.67 per share from $1.98.
Robertson reported that rates declined in the back half of the quarter from Seaways’ earlier guidance of $44,000 a day for 53% of open VLCC days, $52,000 a day for 43% of open suezmax days, and $39,000 a day for 49% of its open aframax and LR2 days.
Meanwhile, Euronav sees an 8% cut in projected earnings, to $0.43 per share from $0.47.
Euronav had guided to rates of $44,750 a day for 45% of open VLCC days and $49,500 a day for 50% of its open suezmax days, but the market fell in both cases. Deutsche Bank expects a dividend of $0.35 per share, which would be roughy 80% of net income, down from the 100% paid last quarter.
The bank has “buy” ratings on all but Frontline, which is rated “hold”.
