It is probably fitting that Jon Chappell was up to his eyeballs in tanker data this week when Streetwise was able to ask him about some news just starting to emerge in New York finance circles.
For the second straight year and third time in five years, Evercore ISI researcher Chappell has won the participants’ vote in Institutional Investor magazine’s annual ranking of shipping analysts.
All about tankers
We caught up with him as he crafted a client note on Scorpio Tankers’ third-quarter earnings, and just the day after he had dropped a chunky research piece with an equally chunky headline: “Tanker Stocks: When Everyone Zigs, It’s Best to Zag (Especially at a Seasonal Bottom)”.
Tankers are pretty much what is left of Chappell’s shipping coverage these days.
Except for US inland barge player Kirby, seven tanker owners remain among 26 transportation names overall.
As Streetwise has reported, declining investor interest in shipping has pushed Chappell and Evercore further into bigger, more liquid names in trucking and logistics.
The changes started in 2020 when Evercore dropped dry bulk altogether.
This took some adjusting for an analyst who once covered 31 shipping names at his previous job at JP Morgan and 20 at Evercore.
But for a researcher who never lost passion for the shipping piece and has been covering it since 1999, Chappell channelled what he had left into the tanker market.
That was enough to win recognition in the annual Institutional Investor voting, which is a thing of importance among the investment banks and the researchers who work for them.
“It’s nice to be acknowledged,” Chappell told us.
“Shipping is not our primary focus anymore, and it’s a shrinking sector from the investor interest perspective. But our market share has grown to an all-time high. Even though it’s not my primary capacity, it’s a sector we care about and treat very seriously.”
Coming second in the tables was Jefferies analyst Omar Nokta — the only major US-based researcher to still make his living exclusively from shipping coverage. Nokta improved from fourth place in last year’s tables.
Bank of America’s Kenneth Hoexter maintained the third position, while the only remaining analyst with a significant market share was fourth-place Ben Nolan of Stifel.
Dropping off the list was last year’s second-place finisher, Amit Mehrotra, who has left both Deutsche Bank and shipping coverage to become an industrials analyst with UBS.
News of Chappell’s honour comes as he and other equity analysts both in the US and Europe have been grappling with declining numbers and expectations in the tanker market after three years of bumper rates.
Investors began selling off tanker stocks in late May. And in recent weeks the exodus has accelerated amid a flurry of analyst downgrades, mostly from European researchers who have included DNB Markets, Pareto Securities, Clarksons Securities and Fearnley Securities.
This led Norwegian shipping fund manager Joakim Hannisdahl to decry fourth-quarter rates expectations that had been pegged too high, followed by “a very loud and public downgrade cycle among analysts”.
And it is not as though Chappell did not bring some of his own earnings reductions and price-target cuts into this week’s 15-page report.
But there is also this central message about the boom cycle: “It is not over yet.”
As Chappell acknowledges, just when a market is beginning to boom or bust is often not easy to call. And he has never been a “perma-bull” analyst looking only for the sunshine.
Chappell’s efforts to get it right over the past four years show he has taken his lumps with a couple of premature calls. But he has also been right on the fundamentals: an investor who followed his tanker research could have profited quite handsomely.
The Evercore man was among the first researchers in May 2020 to call time on a tanker bull market generated by Covid-19 demand destruction and the oil war between Saudi Arabia and Russia. His timing was spot on.
A year later, in May 2021, he trumpeted the beginnings of a tanker market upturn. That call, by his own admission in a research note, was “far” too early, as was a subsequent prediction that August.
But the third time proved a charm in January 2022 as Chappell nailed the entry to what has been nearly a three-year cycle of bumper rates and investor winnings.
Chappell’s thesis in the current note goes something like this.
Investors have lost track of typical seasonality in tanker markets, largely spoiled by market disruptions like Russia-Ukraine and the Red Sea Houthi attacks that drove peak rates regardless of the calendar.
Shareholders have been fleeing in the tanker market’s seasonally weak third quarter and the start of the fourth.
But it is likely seasonality has returned and so has a market rebound: perhaps through the winter, perhaps for the next 18 months.
“Nobody wants to be the last investor holding the bag in a relatively illiquid, undercovered sector, thus the propensity is to sell first and ask questions later as a return to the spot rate highs of the last few years seems incrementally more challenging to underwrite,” Chappell wrote of the investor view.
We may be able to see the end of the cycle, he acknowledged, but we’re not there yet.
“Despite competitor downgrades nearly every day last week, these changes of sentiment are coming after rates have already plummeted to seasonal lows and the stocks have already moved 18% to 37% off 52-week highs,” Chappell argued.
Tanker stocks tend to follow spot rates, and those have begun to see a winter move with a runway of at least two to three months.
And with that, shipping’s top analyst for 2024 had this advice: “Why sell at the bottom, of rates or stock prices?”
