Equity Research Analyst, Maritime sector, Drewry Maritime Financial Research

Ankush Kathuria CFA, FRM

Equity Research Analyst, Maritime sector

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

Teekay Tankers Ltd Class A / Equity Bottom-Up

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Earnings to improve; positive outlook in medium term: Frontline (FRO) reported net profit of USD 2.2m in 3Q18, compared with net loss of USD 24.1m in 3Q17. This was because the company’s VLCC fleet-realised TCE rates increased from USD 13,200pd in 3Q17 to USD 19,900pd in 3Q18; additionally there were other operating gains of USD 12.8m. For 4Q18, the company locked in 77% of its VLCC trading days at USD 34,000pd and 65% of the available Suezmax spot days at USD 24,000pd. Additionally, 59% of the LR2 days have been covered at USD 17,000pd. Freight rates could rise further in the remaining days of the quarter. We expect the TCE revenue to increase 26% y/y to USD 125.4m in 4Q18, and the adjusted EBITDA for the quarter to grow 16% y/y to USD 71.9m from USD 61.9m in 4Q17. Our TCE revenue estimates are expected to increase at a CAGR of 12.1% to ~USD 520m in 2021 with recovery in vessel earnings. We estimate net profit close to USD 40m in 2019, which would expand to around USD 100m by 2021. We expect the company to resume dividend payments that will increase with growing profits. We assign a fair value of USD 6.75 per share and reiterate our Attractive stance on the back of a positive outlook for tanker shipping.</li></ul>


Earnings to improve; positive outlook in medium term: Frontline (FRO) reported net profit of USD 2.2m in 3Q18, compared with net loss of USD 24.1m in 3Q17. This was because the company’s VLCC fleet-realised TCE rates increased from USD 13,200pd in 3Q17 to USD 19,900pd in 3Q18; additionally there were other operating gains of USD 12.8m. For 4Q18, the company locked in 77% of its VLCC trading days at USD 34,000pd and 65% of the available Suezmax spot days at USD 24,000pd. Additionally, 59% of the LR2 days have been covered at USD 17,000pd. Freight rates could rise further in the remaining days of the quarter. We expect the TCE revenue to increase 26% y/y to USD 125.4m in 4Q18, and the adjusted EBITDA for the quarter to grow 16% y/y to USD 71.9m from USD 61.9m in 4Q17. Our TCE revenue estimates are expected to increase at a CAGR of 12.1% to ~USD 520m in 2021 with recovery in vessel earnings. We estimate net profit close to USD 40m in 2019, which would expand to around USD 100m by 2021. We expect the company to resume dividend payments that will increase with growing profits. We assign a fair value of USD 6.75 per share and reiterate our Attractive stance on the back of a positive outlook for tanker shipping.

Frontline – Earnings to Soar with Recovery in Tanker Shipping Space

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Earnings and profitability to expand with gradual recovery: Teekay Tankers’ (TNK’s) TCE revenues for 3Q18 increased 27.3% y/y to USD 92.2m on the back of an expanded fleet after Tanker Investment Limited’s (TIL’s) acquisition. The adjusted EBITDA surged 49.3% to USD 27.4m in 3Q18 from USD 18.5m in 3Q17. However, the company recorded a higher adjusted net loss of USD 17.5m in 3Q18, compared with the adjusted net loss of USD 14.6m in 3Q17. For 4Q18, TNK has fixed 59% of its Suezmax days at USD 19,000pd, 54% of its Aframax days at 19,900pd and 42% of its LR2 days at USD 17,000pd. Freight rates on these fixtures are relatively higher than the rates realised in 4Q17. We estimate TNK’s TCE revenue to expand 35.1% y/y to USD 114.5m, whereas we expect the adjusted EBITDA to surge 62.2% from USD 30.1m in 4Q17 to USD 48.9m in 4Q18. With a recovery in the tanker market, TNK’s TCE revenue estimates are expected to grow at a CAGR of 7.5% to ~USD 475m in 2021, whereas the adjusted EBITDA is estimated to surge from USD 114.5m in 2018 to USD 223m in 2021. Accordingly, we maintain our fair value estimate of USD 1.30 per share and reiterate our Attractive stance on the company’s stock.</li></ul>


Earnings and profitability to expand with gradual recovery: Teekay Tankers’ (TNK’s) TCE revenues for 3Q18 increased 27.3% y/y to USD 92.2m on the back of an expanded fleet after Tanker Investment Limited’s (TIL’s) acquisition. The adjusted EBITDA surged 49.3% to USD 27.4m in 3Q18 from USD 18.5m in 3Q17. However, the company recorded a higher adjusted net loss of USD 17.5m in 3Q18, compared with the adjusted net loss of USD 14.6m in 3Q17. For 4Q18, TNK has fixed 59% of its Suezmax days at USD 19,000pd, 54% of its Aframax days at 19,900pd and 42% of its LR2 days at USD 17,000pd. Freight rates on these fixtures are relatively higher than the rates realised in 4Q17. We estimate TNK’s TCE revenue to expand 35.1% y/y to USD 114.5m, whereas we expect the adjusted EBITDA to surge 62.2% from USD 30.1m in 4Q17 to USD 48.9m in 4Q18. With a recovery in the tanker market, TNK’s TCE revenue estimates are expected to grow at a CAGR of 7.5% to ~USD 475m in 2021, whereas the adjusted EBITDA is estimated to surge from USD 114.5m in 2018 to USD 223m in 2021. Accordingly, we maintain our fair value estimate of USD 1.30 per share and reiterate our Attractive stance on the company’s stock.

Teekay Tankers – Attractive Valuation Ahead of Recovery in Tanker Space

Thematic (Sector/Industry)

The crude tanker market remained weak in the initial nine months of 2018 as vessel earnings remained below breakeven across vessel classes. However, elevated scrapping activity during the year kept a check on fleet growth, and vessel earnings improved in the fourth quarter of 2018. Unlike others, the stocks of Frontline and DHT Holdings generated an overall return of 20.5% and 9.2% in 2018, respectively. The stocks moved on anticipated lines following our upgrade in August 2018. Few stocks such as Frontline and DHT Holdings crossed our fair value estimate. However, all stocks plunged in December 2018 due to the sell-off pressure on New York exchanges.The tanker market has bottomed out in 2018, and we expect a gradual recovery over the next three years as a higher number of demolitions will facilitate market re-balancing by limiting the supply side growth. We expect the stocks to gradually follow the upward trajectory in the second half of 2019 given the optimistic outlook and hence, have awarded ‘Attractive’ rating to tanker stocks under our coverage.

The crude tanker market remained weak in the initial nine months of 2018 as vessel earnings remained below breakeven across vessel classes. However, elevated scrapping activity during the year kept a check on fleet growth, and vessel earnings improved in the fourth quarter of 2018. Unlike others, the stocks of Frontline and DHT Holdings generated an overall return of 20.5% and 9.2% in 2018, respectively. The stocks moved on anticipated lines following our upgrade in August 2018. Few stocks such as Frontline and DHT Holdings crossed our fair value estimate. However, all stocks plunged in December 2018 due to the sell-off pressure on New York exchanges.The tanker market has bottomed out in 2018, and we expect a gradual recovery over the next three years as a higher number of demolitions will facilitate market re-balancing by limiting the supply side growth. We expect the stocks to gradually follow the upward trajectory in the second half of 2019 given the optimistic outlook and hence, have awarded ‘Attractive’ rating to tanker stocks under our coverage.

Tanker Shipping - 2019Gradual Recovery on Horizon

Transport Sector, China and Asia-focused Research

Charles De Trenck

Event-Driven

Tanker shares probably showed up on many aggressive investor stock screens in the last couple of days. But the trade has been on a couple of times recently. And just about came back to its recent starting point a few days ago, in some cases. That is how steep some of the sell-offs were. But the overall original trade probably started when oil made its big decline. We can delineate the trades pretty clearly, while also observing some names that have moved quickly against those still languishing somewhat. We look at some recent performances, better versus weaker trades.

Tanker shares probably showed up on many aggressive investor stock screens in the last couple of days. But the trade has been on a couple of times recently. And just about came back to its recent starting point a few days ago, in some cases. That is how steep some of the sell-offs were. But the overall original trade probably started when oil made its big decline. We can delineate the trades pretty clearly, while also observing some names that have moved quickly against those still languishing somewhat. We look at some recent performances, better versus weaker trades.

Ongoing Coverage: Tankers in Sweet Spot of Negative Correlation to Oil... Share Rebounds

Equity Analyst

Nikesh Shukla

The worst is behind us We believe that we have reached the bottom of the crude tanker shipping market. While we don’t expect rates to reach anywhere close to the levels seen in 2015 later this year, we believe that the ingredients are in place for the market to see a gradual improvement in vessel earnings over the next two years. Beyond that, an improvement in earnings will be predicated how the orderbook evolves as well as on OPEC’s production levels which are currently not at a level sufficient to employ crude tankers at profitable levels.

The worst is behind us We believe that we have reached the bottom of the crude tanker shipping market. While we don’t expect rates to reach anywhere close to the levels seen in 2015 later this year, we believe that the ingredients are in place for the market to see a gradual improvement in vessel earnings over the next two years. Beyond that, an improvement in earnings will be predicated how the orderbook evolves as well as on OPEC’s production levels which are currently not at a level sufficient to employ crude tankers at profitable levels.

Is It Time to Bottom-Fish Crude Tanker Stocks?

United States

Teekay Tankers Ltd. provides oil transportation services through a fleet of mid-size tankers, including Suezmax and Aframax crude oil tankers and Long Range 2 product tankers. The Company's vessels are typically employed through a mix of short- or medium-term fixed-rate time charter contracts and spot tanker market trading.

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Teekay Tankers Ltd Class A (TNK US)

Frontline – Earnings to Soar with Recovery in Tanker Shipping Space

Earnings to improve; positive outlook in medium term: Frontline (FRO) reported net profit of USD 2.2m in 3Q18, compared with net loss of USD 24.1m...

Drewry Maritime Financial Research

Teekay Tankers – Attractive Valuation Ahead of Recovery in Tanker Space

Earnings and profitability to expand with gradual recovery: Teekay Tankers’ (TNK’s) TCE revenues for 3Q18 increased 27.3% y/y to USD 92.2m on the...

Drewry Maritime Financial Research

Tanker Shipping - 2019Gradual Recovery on Horizon

The crude tanker market remained weak in the initial nine months of 2018 as vessel earnings remained below breakeven across vessel classes....

Drewry Maritime Financial Research

Is It Time to Bottom-Fish Crude Tanker Stocks?

The worst is behind usWe believe that we have reached the bottom of the crude tanker shipping market. While we don’t expect rates to reach anywhere...

Drewry Maritime Financial Research

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52-week Range

Market Cap (USDm)

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Frontline – Earnings to Soar with Recovery in Tanker Shipping Space

Earnings to improve; positive outlook in medium term: Frontline (FRO) reported net profit of USD 2.2m in 3Q18, compared with net loss of USD 24.1m...

Drewry Maritime Financial Research

Teekay Tankers – Attractive Valuation Ahead of Recovery in Tanker Space

Earnings and profitability to expand with gradual recovery: Teekay Tankers’ (TNK’s) TCE revenues for 3Q18 increased 27.3% y/y to USD 92.2m on the...

Drewry Maritime Financial Research

Tanker Shipping - 2019Gradual Recovery on Horizon

The crude tanker market remained weak in the initial nine months of 2018 as vessel earnings remained below breakeven across vessel classes....

Drewry Maritime Financial Research

Ongoing Coverage: Tankers in Sweet Spot of Negative Correlation to Oil... Share Rebounds

Tanker shares probably showed up on many aggressive investor stock screens in the last couple of days. But the trade has been on a couple of times...

Charles De Trenck

Is It Time to Bottom-Fish Crude Tanker Stocks?

The worst is behind usWe believe that we have reached the bottom of the crude tanker shipping market. While we don’t expect rates to reach anywhere...

Drewry Maritime Financial Research