Equity Analyst

Nikesh Shukla

Maritime Sector, Equity & Credit Research

Drewry Maritime Financial Research

With no ties to other players in the shipping, finance or banking world, we provide a uniquely impartial view of the markets and companies we cover. Our parent organization, Drewry is a leading independent provider of research services to the maritime and shipping industry, employing over 100 professionals across an international network of offices in London, Delhi, Singapore and Shanghai. Combining our market-leading resources with seasoned sector expertise DFRS offers a highly differentiated and comprehensive range of investment and financial research services to lenders and prospective investors in publicly listed maritime and shipping companies. The full service of reports, supporting resources and sector orientated webinars provides our clients with the most complete picture of the organisations under coverage as is possible. We have been charting and analysing the world’s maritime markets for more than 40 years. This unrivalled intelligence and understanding provides the foundation of our research service. Our analysts have access to one of the most up-to-date, comprehensive and reliable sources of market insight and research data available today. We look at globally listed companies within the following sectors: Port Operators, Container Shipping, Container Manufacturing & Leasing, LNG Shipping, Dry Bulk Shipping and Tanker Shipping. Combine in-depth sector expertise with financial analysis focusing on over 50 stocks globally.

Equity Bottom-Up

Revenues in line with estimates, losses lower than expected: Frontline (FRO) reported Time Charter Equivalent (TCE) revenue of USD 80.6m which is 34% lower compared to the same quarter last year despite the company having a larger fleet. The average VLCC and Suezmax spot rates of USD 14,900pd and USD 15,400pd, respectively, were 57.1% and 30.6% lower compared with rates in the same quarter last year. The company’s adjusted EBITDA plunged 47.9% to USD 40m from USD 76.7m in the first quarter of…

Revenues in line with estimates, losses lower than expected: Frontline (FRO) reported Time Charter Equivalent (TCE) revenue of USD 80.6m which is 34% lower compared to the same quarter last year despite the company having a larger fleet. The average VLCC and Suezmax spot rates of USD 14,900pd and USD 15,400pd, respectively, were 57.1% and 30.6% lower compared with rates in the same quarter last year. The company’s adjusted EBITDA plunged 47.9% to USD 40m from USD 76.7m in the first quarter of…

Frontline (FRO US) – Earnings to Remain in Red; No Dividends on Horizon, Reiterate Unattractive

Unattractive on supply concerns and net losses in medium termWe initiate coverage of Frontline Ltd (FRO) with an Unattractive rating and a fair value of USD 3.50 per share. We believe the company’s prospects will remain challenging in 2018 as a spate of newbulding deliveries will outpace the otherwise robust demand for crude oil over the next 15 months. A pair of VLCC and Suezmax hitting the water every week in 2017 has reversed the fortunes of the crude tanker market. We expect weak freight rates across vessel classes as the supply-demand dynamics will remain unfavourable for crude tanker owners in the medium term. We expect FRO to report losses of USD 52.1m and USD 53.3m in 2018 and 2019 respectively, however, the net loss is expected to shrink to USD 18.1m in 2020 on the back of a gradual improvement in crude tanker freight rates. Moreover, OPEC’s decision to continue the production cut until end-2018 will pre-empt any upside in tanker freight rates. We believe continued losses in the weak tanker market will limit the dividend payments and erode FRO’s shareholder equity, which could put pressure on the company’s stock price. Accordingly, we have an Unattractive view on FRO’s stock.

Unattractive on supply concerns and net losses in medium termWe initiate coverage of Frontline Ltd (FRO) with an Unattractive rating and a fair value of USD 3.50 per share. We believe the company’s prospects will remain challenging in 2018 as a spate of newbulding deliveries will outpace the otherwise robust demand for crude oil over the next 15 months. A pair of VLCC and Suezmax hitting the water every week in 2017 has reversed the fortunes of the crude tanker market. We expect weak freight rates across vessel classes as the supply-demand dynamics will remain unfavourable for crude tanker owners in the medium term. We expect FRO to report losses of USD 52.1m and USD 53.3m in 2018 and 2019 respectively, however, the net loss is expected to shrink to USD 18.1m in 2020 on the back of a gradual improvement in crude tanker freight rates. Moreover, OPEC’s decision to continue the production cut until end-2018 will pre-empt any upside in tanker freight rates. We believe continued losses in the weak tanker market will limit the dividend payments and erode FRO’s shareholder equity, which could put pressure on the company’s stock price. Accordingly, we have an Unattractive view on FRO’s stock.

Transport Sector, China and Asia-focused Research

Charles De Trenck

Nordic American Tankers / Equity Bottom-Up

The tanker sector experienced a substantial sell-off on 17 December as a result of three Teekay group companies slashing their distributions. Teekay Offshore (TOO) and Teekay LNG (TGP) slashed their distrubutions by 80%, while the parent Teekay (TK) slashed its distribution by 90%. Ironically, the Tanker arm (the one we follow more closely), had raised its distribution guidance only a few days ago! TK took the biggest share hit with share price falling some 59%, while TGP and TOO fell 51% and 52%, respectively. TNK shares fell some 9% in sympathy, while other tanker shares took hits as well.

The tanker sector experienced a substantial sell-off on 17 December as a result of three Teekay group companies slashing their distributions. Teekay Offshore (TOO) and Teekay LNG (TGP) slashed their distrubutions by 80%, while the parent Teekay (TK) slashed its distribution by 90%. Ironically, the Tanker arm (the one we follow more closely), had raised its distribution guidance only a few days ago! TK took the biggest share hit with share price falling some 59%, while TGP and TOO fell 51% and 52%, respectively. TNK shares fell some 9% in sympathy, while other tanker shares took hits as well.

Tanker's Hit Broadside by Teekay Distrution Cuts

Norway

Frontline PLC owns a fleet of very large crude carriers and tankers that transport crude oil and oil products between ports. The Company's vessels are managed by ship management companies. Frontline conducts activities worldwide.

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Frontline (FRO US)

Frontline (FRO US) – Earnings to Remain in Red; No Dividends on Horizon, Reiterate Unattractive

Revenues in line with estimates, losses lower than expected: Frontline (FRO) reported Time Charter Equivalent (TCE) revenue of USD 80.6m which is...

Drewry Maritime Financial Research

Testing Times Ahead - Frontline

Unattractive on supply concerns and net losses in medium termWe initiate coverage of Frontline Ltd (FRO) with an Unattractiverating and a fair...

Drewry Maritime Financial Research

Tanker's Hit Broadside by Teekay Distrution Cuts

The tanker sector experienced a substantial sell-off on 17 December as a result of three Teekay group companies slashing their distributions....

Charles De Trenck

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