Fearnley Securities believes Danish owner-operator Torm could benefit from charterers looking to fix product tankers on longer terms in expensive freight markets.
The company logged net earnings of $209.2m in the first quarter, against $153.6m in the same period of 2023, as rates rose.
“As we are approaching the third year of strong earnings in the product tanker segment, there are now signs that counterparties are considering hedging against a continued strong market through longer-term time charters,” analyst Fredrik Dybwad said.
“Should liquidity in the time charter market increase, we believe it will benefit both parties of such contracts, and would take a positive stance should Torm decide to lock in some vessels on longer-term contracts.”
The investment bank is quoting one-year MR charters at $33,000 per day and three-year deals at $25,000 per day.
In the first quarter, Torm’s LR2s earned $54,443 per day, with LR1s bringing in $48,583 and MRs earning $39,121.
The company has signalled that earnings momentum will be sustained for at least another quarter on the back of solid second-quarter bookings.
It has fixed 55% of ship days at $44,000 so far.
Considering average earnings over the past eight weeks of $55,000 per day for LRs and $35,000 per day for MRs, the investment bank is expecting Ebitda to come in at a strong $238m for the second period.
Torm has been able to grow its fleet while maintaining high distributions, using its stock as currency. Older ships have been sold off.
“With the product tanker space displaying unprecedented strength, there could still be some upside to asset values,” Dybwad said.
Fearnleys has a “buy” rating on the shares.
“Torm is paying out a substantial part of earnings (85% of earnings per share in 2023), and coupled with agile fleet renewal initiatives, we argue the equity deserves a premium pricing to its peers,” the analyst added.
Torm said this week that the product tanker market looks positive for a further three years.
