Cleaves Securities says two of the LNG carrier stocks it covers “look attractive” after the recent plunge in share prices.
“LNG shipping stocks have taken a beating lately, with our LNG share index down 45% year-on-year,” said head of research Joakim Hannisdahl.
“We believe Flex LNG and GasLog are looking attractive at current levels,” the Oslo-based analyst said.
“Flex is trading at a 33% discount to NAV with a modern and highly efficient fleet, while GasLog has a strong charter backlog.”
He attributes the declines in share prices to several factors including high natural gas inventories at importers such as Europe, which is currently utilizing almost 98% of available storage capacity, which is up almost 11% year-on-year.
He also highlights weaker demand growth in Asia, which this year is forecast to be just 6%, far below the recent average of 11%.
Hannisdahl said that while China continues to grow rapidly, the US-Sino trade war is “relatively negative” for tonne-mile demand.
Meanwhile, Japan, Asia largest LNG importer, is said to have seen imports contract 4% year-on-year on a one year moving average, in part to the country restarting some of its nuclear power capacity.
Hannisdahl said the Power of Siberia pipeline between Russia and China due to open in December, is also likely to be having a negative impact on sentiment.
The pipeline is expected to have 5bn-cbm per year of capacity initially, equivalent to around 1.6% of China’s total gas supply. However, this is expected to increase to 38bn cbm per year by 2023.
He adds that the supply side has also been boosted after the restrictions on Cosco’s LNG carriers were lifted a few weeks ago.
Hannisdahl forecasts a cyclical peak for the sector in the fourth quarter of 2020, with potentially weaker earnings in 2021 and 2022.
