Cleaves Securities is sticking to its pessimistic view of the tanker market despite stellar results from big owners this week.
Belgian giant Euronav was the latest crude carrier player to reveal its bumper first quarter earnings earlier on Thursday, posting net profit of $226m.
"Euronav delivered an incredible result, above expectations and even better than DHT earlier this week," Cleaves head of research Joakim Hannisdahl said.
"Our pessimism for the second half of 2020 and beyond is however unchanged, and spot rates have fallen even sooner than we expected."
Fearnley Securities quoted spot VLCCs at $55,074 per day from the Middle East Gulf to South Korea on Thursday, down 58% month on month.
As a result, Cleaves now sees some downside risk to its second quarter forecast, after having predicted VLCCs to average $75,000 per day in May and June.
"The theoretical storage economics from the Brent oil futures curve contango is now only supportive of $48,000 per day for six months and $36,000 per day for one year, significantly down from the respective peaks of $161,000 per day and $97,000 per day in late March ahead of the OPEC+ meetings," Hannisdahl said.
"Although we do not rule out a near term recovery of the contango, we nevertheless remain pessimistic from the third quarter of 2020 and beyond."
He reiterated the firm's view that the cash flow generated in the recent boom is offset by looming asset value depreciation.
Euronav on hold
With near term uncertainty remaining, it has maintained an $11 per share target price on Euronav's stock and a hold rating. The shares were trading up 8% at €9.63 ($10.24) in Europe on Thursday.
Euronav reported time charter equivalent revenue of $384m in the first three months, far ahead of Cleaves' $360m forecast and consensus at $354m.
The realised spot rate for VLCCs came in at $73,000 per day, against its $65,000 per day forecast. DHT managed $66,000.
Amit Mehrotra, an analyst at Deutsche Bank, said he could not expect any more from Euronav in terms of realising significant cash flow and passing on most of this to shareholders in dividends.
High rates allowed for $220m of net debt reduction in the first three months of the year, "which, by the way, is not really necessary, in our opinion, given the already very low net debt balance of the company relative to the market value of its assets," the analyst added.
Dividend set to rise
Euronav's forward booking rates for VLCCs are 30% higher than in the first quarter, implying the second quarter dividend is most likely to be significantly above the 81 cents seen in the first, Mehrotra said.
The shipowner remains Deutsche Bank's top pick in shipping and near the top across all industry sectors.
"Management is highly consistent in its capital allocation approach, the balance sheet looks solid, and Euronav should be able to thrive in almost any tanker market," he said.
This holds true for a strong market "allowing the company to generate cash and dividends," he added, and a weak one enabling it to use its balance sheet and financial scale to acquire assets at a lower valuation and "thus sowing the seeds to greater operating leverage into the next upturn, as the company has done over the last seven years-plus."
Mehrotra has a buy rating on the shares.
