Wells Fargo says tanker company valuations may get worse through the first half of 2017 before getting better as Opec cuts get implemented, newbuilding deliveries accelerate and resale prices weaken.
Senior analyst Michael Webber says investors need to watch the "bad news parade for signs of a bottom" in tanker company valuations over the next six months. He also reduced estimates on a host of names in response to lower rate forecasts for the year.
"We'd like to see how aggressively tanker stocks discount what we see as an impending string of negative data points before considering getting more constructive," Webber said in a research report.
Saudi factor
The elephant in the room remains the pledge to cut some 1.8 million barrels per day of crude oil production. Saudi Arabia has already lowered crude oil nominations for February, and the impact of those cuts "hasn't been felt in tanker tradeflows."
Bullish factors that might help the tanker trade would be whether more crude comes out of Atlantic Basin producers in response to lower volumes out of the Middle East Gulf and the shuttering of shipyard capacity.
Nevertheless, Webber trimmed 2017 rate assumptions across various tanker classes with VLCCs expected to earn an average of $29,600 per day compared to a previously forecast $37,000 per day. Suezmax rate assumptions were trimmed $1,500 per day to $23,500 per day while aframax rates were only trimmed slightly to $18,200 per day.
Earnings estimates were also revised across many tanker companies as a result of the new rate assumptions.
John Fredriksen's Frontline saw its earnings estimates for 2017 shaved 30% to $0.65 per share. DHT Holdings saw estimates lowered 43% to $0.43 per share.
Herbjorn Hansson's Nordic American Tankers saw 2017 estimates trimmed 66% to $0.29 per share.
Teekay Tankers estimates were lowered 53% to $0.26 per share. And Tsakos Navigation Partners is expected to earn $0.79 per share, down 26% from earlier estimates.
Yet Anthony Gurnee-led Ardmore Shipping is expected to $0.28 per share, better than Webber's earlier estimate of $0.13. Euronav could earn $0.45 per share this year, up from an earlier estimate of $0.42.
