Investment bank Jefferies sees good things in store for the tanker market for the rest of 2024, but it is curbing its enthusiasm when it comes to the shares of Herbjorn Hansson’s Nordic American Tankers and Tsakos Energy Navigation.
Amid a generally positive update on tankers, Jefferies lead shipping analyst Omar Nokta found reasons to downgrade to “hold” from “buy” the stock of both New York-listed owners.
“Age of fleet is becoming a concern with one-third of its vessels built pre-2010, which is having a noticeable impact on realized freight rates,” Nokta wrote of NAT, which had granted a rare conference call with Hansson to equity analysts earlier in the day.
Jefferies did, however, keep NAT’s price target steady at $4 per share. It closed at $3.61 in Thursday trading, up about 0.56% on the day.
It was not so much fleet age that troubled Jefferies about TEN, but rather what comes from its continuing efforts to renew the fleet.
“While the shares trade significantly below NAV, free cash flow generation is low due to a relatively higher debt ratio and sizeable newbuilding commitments,” Nokta wrote.
TEN fared the worst of the 10 tanker companies under Jefferies coverage at returning capital to shareholders over the past year, according to a graphic accompanying the bank’s report.
This came in at just 4% of market capitalisation, well down from leader Torm’s 20%. Ardmore Shipping and Teekay Tankers — both at 6% — were the only other owners to return single digits.
Jefferies also scaled back its price target to $27 from $31.
TEN’s stock had another positive day on Thursday, closing up a fraction at $24.65 after a rise of more than 7% on Wednesday, as investors reacted to an increase in its twice-per-year dividend to $0.90 from $0.60.
Looking at the broader market, Jefferies likes chances that tankers will have a typical fourth-quarter winter rebound in rates even as shares largely have sold off in the traditionally weak current quarter.
Whereas product tankers won the day in the first half, Nokta believes crude carriers will have the stronger performance to see out the year and then through 2025.
“Overall we see a continued tight balance across both tanker segments going forward, with crude slightly tighter and products moderately looser,” he wrote.
