Euronav is unlikely to see its market cap significantly dented by its first quarter loss, analysts believe.

The Belgian VLCC and suezmax giant posted red ink of $71m to 31 March, but its finances stand it in good stead, market observers said on Thursday.

Amit Mehrotra of investment bank Deutsche Bank said the "results were not great, albeit in line with low expectations".

He added that they reflected tough markets for crude tanker owners.

"But we don’t see any real impact to equity value. And we don’t expect these difficult results to be capitalised in shares....just as extraordinary results from this time last year were not capitalised," Mehrotra said.

Unfairly undervalued

Clarksons Platou Securities analyst Frode Morkedal said the stock was "undeserving" of its low valuation.

The share is up 10% so far in 2021, but still has a significant upside, he believes.

Clarksons Platou estimates the net asset value at $12.40 per share, an implied value of $74m for a prompt VLCC newbuilding, which is among the lowest valuations in the peer group.

The stock was down 2.6% at $8.47 in pre-trading on Thursday in New York.

"With only 35% loan to value and more than $1bn of liquidity we find the balance sheet...very strong," Morkedal said.

Upside come what may

"In other words, even if the tanker market were to stay weaker for longer than expected, the risk is skewed to the upside," he added.

Amit Mehrotra said capital position and balance sheet are key. Photo: John Galayda/TradeWinds Events

This was echoed by Mehrotra, who said in the "double-whammy" operating environment of less oil demand and less Opec output, capital position and balance sheet are important.

"And in this context Euronav shines," the analyst added.

Mehrotra said the very low net debt position allows for lower break-even rates, and "even an ability to be aggressive via acquisitions at a weaker point in the cycle, which is the key to creating value over time in shipping".

Burning cash not a good look

Having cash to burn is not an overly compelling investment case, Mehrotra admitted.

But he does see future demand trends as a positive for the sector, with economies opening up and Opec turning on the taps.

Mehrotra is maintaining a "buy" on Euronav, as is Morkedal.

The Clarksons Platou man said: "The company in our view is exceptionally well-placed to potentially generate outsized returns for shareholders given its low valuation, strong balance sheet and the large fleet and leading position in the industry."

At the investment bank's $40,000 per day rate estimate for VLCCs in 2022, Euronav could generate earnings per share of $1.10.

At $55,000, which is Clarksons Platou's 2023 estimate, this would be $2.52.

"Using the old rule-of-thumb that 1m barrels per day of extra production requires 25 VLCCs on the Middle East-to-Asia route, we believe the tanker market is bound to see a sharp turnaround in the months to come," Morkedal said.