Cleaves Securities believes seasonal highs and another La Nina weather event should boost LNG carriers this year.
In a "highly optimistic" reading of the market in the rest of 2021, the Norwegian investment bank has upgraded the sector from "sell" to "hold".
Despite the expected collapse in spot earnings, share prices have "skyrocketed" in concert with a highly active charter market, according to managing director and head of research Joakim Hannisdahl and equity research analyst Peter Michael Christensen.
"Although share prices should normally have fallen with spot rates, traders’ and utilities’ fear of being caught short on shipping has been a superior force for equity pricing," they said.
John Fredriksen's Flex LNG has seen its Oslo share price more than double from NOK 50 ($5.67) to more than NOK 120 over the past 12 months.
Cleaves sees a seasonal high ahead and a 66% probability of another La Nina, which would be supportive of LNG carriers as demand increases in colder weather.
Against a "massive" 5.4% net fleet growth so far this year, spot rates for TFDE-type ships fell from $195,000 per day on 8 January to $71,000 per day on average during the first half, similar to the investment bank's $73,000 forecast from 19 January, the analysts said.
Jump for earnings?
Hannisdahl and Christensen envisage earnings rising significantly higher before the turn of the year, partly due to depleted LNG inventories at major importers.
Regional price differentials are now at multi-year highs, being highly supportive for freight, they said.
Time-charter rates have risen 97% so far in 2021, and newbuilding prices are higher.
Cleaves is raising its secondhand asset price assessment by 17% on average, depending on class and vintage.
Since the investment bank's April update, 62 million tonnes per annum of proposed new liquefaction capacity has been cancelled, adding to Cleaves' concerns for 2022 to 2024, however.
"With the orderbook at 23% of the fleet, our demand growth forecast of only 3% in both 2022 and 2023 could easily undermine the current positive sentiment," the analysts said.
Cash concerns quashed
The improved cash flow forecast has "almost eliminated" Cleaves' liquidity concerns for Oslo-listed Awilco LNG.
Flex LNG has been very active in the charter market recently, taking advantage of the surging rates, the investment bank said. "A highly beneficial move in our opinion," the analysts said.
Increased vessel valuations have lifted Cleaves' net asset value assessments significantly.
These now stand at $0.37 per share for Awilco LNG, up from minus $0.17, and $20 for Flex, up from $14.
