John Fredriksen-backed Flex LNG looks set to reward investors in healthy LNG markets stretching into 2023, Fearnley Securities believes.
Record high gas prices and tight vessel availability continues to push rates to new highs, with MEGI/XDF carrier headline rates now at between $250,000 and $300,000 per day for spot trips.
Growth in Asia has propelled earnings and low European inventories are implying high prices next year as well, the Norwegian investment bank said.
"A strong charter book coupled with spot-linked time charters provides meaningful upside to a very strong LNG carrier market, which looks set to continue through 2022/2023," analysts Peder Nicolai Jarlsby, Erik Gabriel Hovi and Ulrik Mannhart said.
"Flex LNG continues to deliver on its promises and is becoming a real dividend machine," they said.
Modern ships should cash in
Fearnleys argues that while the winter will to a large extent define the market of 2022, the outlook looks to be in owners' favour, particularly for those with modern tonnage, as the industry moves towards a new regulatory regime.
This is already making charterers concerned over winter next year, suggesting the strong momentum in time-charter interest should continue, the analysts said.
They believe that gas prices in 2022 should be more balanced than present levels, but they think it will be a case of a "lower but still high" scenario.
This leaves favourable trading dynamics for the LNG carrier fleet, the analysts said.
The positive tonne-mile situation arising from shipping US volumes to Asia should continue, exacerbated by Panama Canal delays, while fleet supply growth should be about half of 2021 levels, the investment bank believes.
Steam vessels to be badly hit
The IMO's new energy efficiency regime from 2023 is likely to "severely impede" older steam turbine vessels that were already at risk of redundancy, the analysts said.
"The playing field for Flex LNG looks very favourable."
With about 60% of fleet contract coverage through 2023 and 50% for 2024 at highly accretive rates, Fearnleys said Flex LNG has the luxury of patiently waiting for the right deals to present themselves.
The investment bank has a "buy" rating on the stock, with a target price of NOK 245, against NOK 212.80 in Oslo on Thursday.
Flex LNG has lifted its earnings guidance on the back of a roaring spot market as the company turned in strong third-quarter figures.
Chief executive Oystein Kalleklev said the company will be "handsomely rewarded" in the fourth quarter for maintaining a 30% exposure to the spot market that is at "all-time highs".
"We are consequently lifting our revenue estimate for the fourth quarter from previously guided $85m to $100m to about $110m, thus further improving earnings in the near term," he said.
Flex reported an almost nine-fold jump in its third-quarter net income up at $32.8m, from $3.8m in the corresponding three months of 2020.
