Back in November 2022, Scorpio Tankers president Robert Bugbee joked around with investors on an earnings call about his stock rising to $82 per share.
Odd as it seemed, especially with the share around $51, it emerged as an inside joke: Bugbee was indulging an investor from one of the online message boards who had been highly supportive and went by the screen name Bullish82.
“There has been some joking about who will be the first analyst to arrive at $82 as a target NAV [net asset value] but I’m happy to stand by it regardless. I’m happy to say we’re moving toward that number soon,” Bugbee told TradeWinds.
Flash to late January 2024 and perhaps Bugbee, Bullish82 and the analyst group all were aiming too low.
Jefferies lead shipping analyst Omar Nokta has just emerged with a call for the product tanker giant to reach $90 per share within the year as it continues to surge with the current rally in clean tanker rates.
The share did soar to a record high of $70.27 on Thursday before falling back a bit, sitting at $69.15 when Nokta wrote his note and just above $69 in trading on Friday morning in New York.
“Product tanker rates have broken out, particularly LR2s, and Scorpio’s position as the largest owner of such tankers puts it in a unique position to generate substantial sums of cash,” Nokta told clients on Friday.
“Product tanker demand remains strong and capacity continues to be tight, especially as diversions from the Red Sea are gaining momentum and indicate a further tightening supply/demand balance in the coming weeks.”
The Jefferies analyst puts Scorpio’s current NAV right at that magic number that was part of Bugbee’s schtick — $82. But he sees it rising to $90 by year’s end and makes that his target price for the share. Jefferies’ previous target was $74 per share.
Nokta is the second bank analyst in two days to raise Scorpio’s target price, with DNB’s Jorgen Lian hiking his number to $82 on Thursday. DNB’s previous figure was $75.90.
The Jefferies analyst is largely moved by LR2 rates passing $100,000 per day for only the second time in their history.
He increases expectations for Scorpio’s full-year earnings per share to $12.79 from $9.44, while noting that the consensus estimate for Wall Street analysts is $11.04.
The Emanuele Lauro-led company has been working furiously to pay down debt and said at its last quarterly earnings call that it is almost ready to begin shifting its capital allocation strategy primarily to shareholder returns — whether that be increased dividends, further share repurchases or both.
Nokta hints that Scorpio may be ready to move sooner rather than later on that strategy, even though its current net debt of about $1.2bn is still somewhat higher than its target of $800m.
The view from London
One use of capital that is not likely to take priority in the near term is spending on newbuildings, as was laid out by Scorpio USA managing director Hugh Baker in comments at Marine Money’s conference in London on Thursday.
“We don’t have any ships on order and one of the reasons for that is we are not certain as to which path to follow in terms of propulsion systems,” he said.
“We are very happy to wait and let others move ahead of us and order ships. We have a very young fleet with an average age of eight years, so we are really not that concerned about the propulsion systems, and that decision can be made by other people in the market and we look forward to following them in due time.”
Baker voiced an upbeat view on the product market and said it was not all owing to the Red Sea disruptions that have roiled rates and drawn attention from investors and analysts alike.
The orderbook does not appear “particularly threatening” and the supply/demand balance seems favourable, he said.
“Even without the geopolitical events that are powering the product tanker market, we think we are in for a good trip.”
