Promise of a return to profit in the second quarter as a taster of “fantasy” earnings later this year shifted shares in two of the world’s largest VLGC owners into a forward gear today.
Andreas Sohmen-Pao chaired BW LPG and John Fredriksen-backed Avance Gas both gained ground on the Oslo Stock Exchange amid a positive outlook from analysts at Pareto Securities.
Eirik Haavaldsen and Wilhelm Flinder of Pareto said both owners were set for a major year-on-year improvement in second quarter results - but branded the upcoming results “only small prequels” to what the third quarter will bring.
Profit for BW and Avance would mark the end a multi-year losing run for both companies following a long downturn in the VLGC market.
Pareto forecasts a profit of $36m for BW LPG in the second quarter, leading to a forecast that a dividend will be paid for the first half of this year.
Haavaldsen and Flinder said “fantasy-figures” would be seen in the third quarter, with the shipowner set for a profit of $96m before a drop to $18m in the final quarter of the year.
This would see BW LPG finish 2019 with a profit of $126m, before rising to $158m in 2020 and $206m in 2021, according to Pareto’s forecasts.
Shares in BW LPG, the VLGC market leader, were trading up 5.59% at the time of writing, with the stock having climbed by 52% this year.
Avance is also tipped for return to the black in the second quarter in what would mark its first profitable interim performance since the opening three months of 2016.
“The refinancing is done, and with the new CEO in place we expect the company to eventually move into a more aggressive mode,” Haavaldsen and Flinder said.
Pareto believes Avance will card a profit of $8m in the second quarter and $33m in the third, before breaking even in the final three months of 2019.
This will result in a first annual profit since 2015 for Avance this year at $25m by Pareto’s numbers. Its bottom line is projected to climb further to $34m in 2020 and $51m in 2021.
Avance shares climbed to a high of NOK 25.90 each this morning, up around 4% before settling at around NOK 25.00 each. This is a 1.42% bump today and a 102.27% climb in the year to date.
Haavaldsen and Flinder said VLGC owners are now benefiting from a market equilibrium – as US production surges and OPEC cut-backs keep global markets from becoming oversupplied.
They describe the market as in a sweet spot and US production keeps surprising.
“While the oil price turmoil certainly provides uncertainty there is no way to evade the surge seen in US LPG production this summer,” they said.
“Both Targa and Enterprise have made significant infrastructure investments over the past year, and both pipeline and fractionating capacity has been expanded.”
