John Fredriksen's big new investment in tanker rival Euronav is probably a financial punt on markets improving, one leading analyst believes.
The tanker tycoon's privately controlled CK Limited was revealed to have amassed a 5.5% slice of the Belgian VLCC and suezmax company on Monday, a stake already worth $123m.
"This will likely lead to merger speculation between Frontline and Euronav," said Clarksons Platou Securities managing director Frode Morkedal.
A combined fleet of VLCCs owned by Euronav and Fredriksen's Frontline would control around 8% of global market share.
But Morkedal pointed out that Fredriksen has previously bought shares in other tanker companies as financial investments, with US owner DHT Holdings as one example.
"While the intention behind the purchase is not known, it likely reflects a positive belief in the crude tanker market and Euronav's valuation," added the analyst.
Clarksons Platou assesses Euronav's net asset value (NAV) at $11.89 per share, against a close of $10.20 in New York on Friday, although the stock was trading up more than 3% in Brussels on Monday.
Euronav a bargain?
The investment bank views the company as one of the lowest priced crude tanker stocks with an implied average value per VLCC of no more than $88m versus broker quotes of $97m.
"We believe tanker stocks are highly compelling due to low fleet growth and Opec+ scheduled to increase oil production significantly, which in our view should lead to a markedly improved tanker market through 2022," Morkedal said.
VLCC earnings averaged around $9,000 per day in the third quarter for non-eco vessels, Clarksons Platou calculates.
So far in the final three months of the year, the big non-eco tankers have averaged $8,200 per day.
"In the short term, we have seen significantly higher refinery margins and falling inventories. which should lead to improved refinery demand for crude in the coming months," Morkedal said.
He believes VLCC earnings will average $40,000 per day in 2022 as the gradual impact of more seaborne volumes lift the market.
"[Euronav] has substantial liquidity reserves of more than $900m hence we see risk/reward as highly compelling," Morkedal said.
This is plenty of money to not only withstand a weak tanker market, but also to invest and return capital to shareholders, the analyst added.
Clarksons Platou has a "buy" rating on Euronav's shares, with a target price of $16.
