Is It Time to Bottom-Fish Crude Tanker Stocks?

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

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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<strong>Earnings </strong><strong>to improve; positive outlook in medium term:</strong> 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.

フロントライン – タンカー輸送スペースの回復により収益が急上昇