JP Morgan is bumping up its Scorpio Tankers rating ahead of the expected sector rally brought on by the incoming IMO 2020 emissions regulations.
Noah Parquette, analyst at the investment banking giant, upgraded the New York-traded shipowner to overweight from neutral and raised the target price to $34 from $29.
In his note, Parquette said institutional interest in the sector was growing thanks to IMO 2020, which has players in the product tanker sector salivating over increased demand brought on by the need for lower sulphur fuel.
"[W]e believe it's reasonable that actual strength in product tanker rates could be seen in Q3/Q4 as refineries exit maintenance periods and many shipowners being filling their ships with low sulphur fuel before the actual switch date," he said.
Parquette did express concern over sister company Scorpio Bulkers' 10.5% ownership stake in Scorpio Tankers — a position the company's leadership defended last month. Despite that, he said, the company should be a "natural attraction" for investors looking to cash in on IMO 2020.
In midday trading Thursday, Scorpio Tankers shares were up 2.94% to $27.69.
For the first quarter, Scorpio Tankers posted a $14.5m profit, besting analyst expectations by $0.13 thanks to declining costs. The company reported growing day rates for LR1, LR2 and MR tankers in the second quarter.
On the earnings call, president Robert Bugbee said "there's no question" IMO 2020 would raise rates for all segments of its fleet.
