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Tanker stocks could double share prices by Christmas
Investor/analyst J Mintzmyer talks about why sell-side analysts are being too 'simplistic' in their boom-then-bust scenario for equities.
21 April 2020 19:28 GMT Updated 21 April 2020 19:28 GMT
By Joe Brady
Could some crude-tanker stocks double from current prices by year’s end?
That may not be a popular view, but it is one held by Value Investor’s Edge shipping specialist J Mintzmyer, who let loose a bullish sector note on floating-storage dynamics Tuesday.
Sell-side equity analysts are underestimating the “legs” of a contango crude market that has a global oil glut seeking storage on dozens of tankers, Mintzmyer argued in remarks to TradeWinds Tuesday.
Several analysts see tanker owners living high for the next few months on historically robust rates, only to come crashing down in the final third of the year as coronavirus-ravaged demand revives, and global inventories are finally de-stocked.
Mintzmyer sees a longer bull market. He projects that Connecticut-based Diamond S Shipping ($13 today) could trade in the $30s per share by year’s end, and New York’s International Seaways (now $26) “in the $40s-$50s.”
On the other hand, Mintzmyer is not a big fan of Herbjorn Hansson’s Nordic American Tankers ($5.17), arguing it is being overvalued by investors and holds limited upside.
“If you look at the contango curves and assume a reasonable market, the storage play has potential legs through December – perhaps even longer,” Mintzmyer said in a message to TradeWinds.
He estimates about 150 VLCCs will be needed to “sop up” lost export demand from the virus.
Considering that fixtures today don’t load until mid-May, “we’re likely already in the triple-digit VLCCs for storage.”
TradeWinds reported earlier Tuesday that more than 100 tankers are already tied up in storage use, citing market sources.
Mintzmyer is different from sell-side bank analysts in that he is an investor who holds and discloses positions in many of the stocks he covers.
He acknowledges holding “long” positions in Diamond S and International Seaways, along with Euronav, Navios Acquisition, Scorpio Tankers and Tsakos Energy Navigation.
But he insists it is proprietary models that lead him to the bullish position on Seaways and Diamond, which he considers in solid position to withstand even adverse markets.
Mintzmyer also sees potential $300,000 per day rates on some short-haul VLCC routes later this quarter.
Seaways has 70% of its tonnage by deadweight in the key VLCC sector. Diamond doesn’t have VLCCs but has 50% exposure to suezmaxes by tonnage.
Mintzmyer doesn’t rule out that a bear market could eventually take hold for the crude names.
“I’m not entirely discounting the risk of a big famine, but I think the ‘feast-then-famine’ scenario is a bit too simplistic,” he said.
Some analysts are focused too narrowly on OPEC reductions and overlooking the prospects of US-to-Asia crude exports that would involve far greater tonne miles, he said.
“The US is drowning in oil storage and also has a trade deal with China, which could involve a lot of crude purchases,” he said.
“US storage needs to come down over time so exports could remain significant for many years, even under weakened production.”
Still, Mintzmyer argues that suezmax purist Nordic American Tankers has less upside despite its strong trading in recent weeks.
“NAT is a retail favourite, but the valuations are terrible compared to other firms and it’s primarily getting bid up due to an uniformed retail crowd trying to ride a wave,” he said.
NAT’s Hansson trumpeted the company’s strength in a 14 April note to shareholders.
“The tanker market is continuing from strength to strength. This bodes well for our dividends going forward. Historically, tanker rates above $30,000 per day are good for NAT,” Hansson told them.(Copyright)