Fearnley Securities cut its recommendation for several product tanker companies on Friday.
The investment bank lowered its estimates for 2024-2026 Ebitda by 16% on average for product tanker stocks.
Fearnleys analyst Fredrik Dybwad said: “We believe product tanker earnings are normalising and facing higher supply than tonne-mile growth, while the VLCCs look more robust through the low orderbook and a promising tonne-mile growth story.
“We see downside risk to consensus [lower rates], pressure on asset values and less favourable risk/reward on geopolitical events.”
The investment bank predicts the current market deficit will shrink, driven by 1% to 2% tonne-mile growth for 2025 and 5% fleet growth.
“Moreover, we see limited potential for [extraordinary] events pushing tonne-miles upwards in 2025 (as with Ukraine, Red Sea), with risk of new geopolitical events working the other way around, we believe,” Dybwad said.
Ardmore Shipping, d’Amico International Shipping, Hafnia, Scorpio Tankers and Torm were cut to “hold” from “buy”. Fearnleys maintained a “buy” for Tsakos Energy Navigation.
“For product names we expect a normalisation in product rates and see downside risk to values, hence above net asset value pricing screens aggressive,” Dybwad said.
The 2024-2026 Ebitda estimates for crude tanker names was cut by 5% on average.
“With yard slots being hard to come by before 2028, we see limited potential for any meaningful declines in newbuilding prices and argue current secondhand values have sound support in newbuilding prices,” Dybwad said.
Fearnleys sees a pickup in rates in 2025, forecasting $60,000/day for VLCCs on the back of a rising East-West trade, assuming no additional Opec+ barrels in its forecast.
Dybwad said: “Following a couple of years of underperformance relative to the smaller vessel classes, we believe markets will normalise and revert to the norm in the coming quarters.
“The strength and outperformance in earnings for the smaller vessel classes is largely driven by external extraordinary factors which have disrupted trade (Russia/Ukraine, Red Sea) — all of which the VLCCs have been largely unaffected by.”
The bank’s top picks are DHT Holdings, Frontline and Okeanis Eco Tankers Corp.
“Coupled with 10%+ dividend yields at current rate estimates, we highlight these companies as attractive investments ahead of peak season — with potentially higher valuations and higher asset prices aiding equity valuations on the other side of seasonality,” Dybwad said.
