Fearnley Securities has cut tanker giant Frontline’s profit estimate for the fourth quarter as analysts noted a new rates pattern for VLCCs.
The John Fredriksen company releases financial figures for the third quarter on Wednesday.
Fearnley analysts Fredrik Dybwad and Nils Thommesen said that due to overall market developments and forward bookings already revealed by other tanker owners, fourth-quarter earnings-per-share forecasts for Frontline have been reduced to $0.41, from $0.89 previously.
They explained that lower domestic demand and refinery runs have meant exports of Atlantic crude barrels are now higher in the first quarter of a year, meaning a “changing seasonality” for big tankers, shifting the peak from the fourth quarter.
With Opec curbing production while Atlantic basin producers raise theirs, market share has been increased, resulting in more importance for freight rates.
In addition to volumes being higher in the first three months, Atlantic exports tend to travel longer distances, bolstering tonne-miles at the tail end of winter, they said.
“The impact on rates is evident: the rate peak for VLCCs occurred in Q1 for the past two consecutive years, and we believe this year will be no different,” the duo added.
Fearnley described Frontline’s risk-reward as “enticing” at the current equity valuation, which is below its historical average.
And the new seasonality is arguably not priced into the share price, the analysts said.
Investors sleeping easy?
“Coupled with a low orderbook, [the] current valuation means that you could buy stock and sleep well at night for the next six to 12 months, as the oil market balance implies tonne-mile growth in 2025, we believe,” they added.
Fearnley has a target price of NOK 320 ($29) per share, down from NOK 325 previously. The share closed up 1% at NOK 216.80 in Oslo on Friday.
The target price is equivalent to 1.3 times Fearnley’s estimate of Frontline’s one-year forward net asset value, and in line with historical NAV pricing.
The investment bank has a “buy” rating on the shares.
UK shipbroker Gibsons said the VLCC market seems to have found its floor after a challenging week, when a large amount of unfixed tonnage, including many relets, put downward pressure on an already inactive market.
“Owners are showing a bit more resistance but [this] week could be challenging, as the fundamentals are in the charterers’ favour, with demand lower than normal for this time of the year,” the company added.
London shop Howe Robinson Partners assessed eco ships at $34,706 per day from Saudi Arabia to Japan on Friday.
