Promise of rising profitability and strong cash flows have led Fearnley Securities to take up coverage of Wall Street newcomer Diamond S Shipping with a buy rating.
Analysts Espen Landmark Fjermestad and Peder Nicolai Jarlsby began coverage with an $18.2 per share target price on what is now a 68-ship company.
“Following a merger with Capital Product Partner’s tanker fleet Diamond S has finally stepped into the public scene,” the analysts wrote.
They forecast Diamond S will generate $350m in free cash flow next year, equal to three quarters of its present market capitalisation.
And with low cash break evens and moderate leverage, there is ample room for dividends by Fearnley’s forecasts.
Diamond’s fleet of MR, suezmax, aframax and handy tankers should bring in a profit of $112m before tax in 2019, the analysts believe.
In 2020, this is projected to climb to $261m.
“With an expected second half 2019 inflection point (OPEC reversal, fleet disruptions, refinery ramp ups) just around the corner we see tremendous value in Diamond S Shipping,” Fjermestad and Jarlsby said.
Presently, Diamond S has 20% of its fleet chartered out on short on medium term charters. However, most of those deals will expire by next summer.
“Diamond S will for the most part be a spot play into what we expect to be a new tanker super cycle starting second half 2019,” the analysts said.
