Shipping stocks continue to grow amid the storm on Wall Street

The Nasdaq index has fallen by 29% since the beginning of the year, the S&P 500 – by 17%, the Dow – by 12%. And there is the delivery of goods. Despite several rough trading sessions along the way, inventories have increased by double digits since the beginning of the year. In some cases, three digits.

“The power of profit of these [commodity shipping] companies are going in the opposite direction, ”said Ben Nolan, Stifel shipping analyst. “Prices for bulk cargo and tankers are really good compared to something like freight rates.”

Stocks of food tankers

Owners of tankers, ships carrying cargo such as diesel and gasoline, perform particularly well. Shares of Scorpio Tankers (NYSE: STNG) have grown 127% since the beginning of the year as of Friday’s close. Ardmore Shipping (NYSE: ASC) increased by 110%. Ardmore reached a 52-week high on Wednesday, Torm (NASDAQ: TRMD) on Thursday.

According to Clarkson, as of Friday, modern medium-range (MR) tankers – those that typically load diesel and gasoline into the Persian Gulf – were earning $ 55,300 a day in the spot market. That’s five times more than they earned on average in 2021.

“If you can give me $ 30,000 a day for the whole year [for MRs]“That would be incredible,” said Liam Burke, a shipping analyst at B Riley Securities. Even at the levels he expects in the mid and lower 20s, “you will see very good cash flow and some benefit to shareholders in reducing debt if the value of the business passes to the shareholder or probably more buyouts and dividends” .

Nolan named the fate of the war. “I don’t think people are lost to the fact that tankers benefit from what is happening in Russia and Ukraine. And that doesn’t seem to change anytime soon. If Europe is more independent [of Russian supplies] and the US should become the world’s energy savior, that’s good for the tanker market. “

Nolan noted that in 2021, stock tanker stocks were traded at a higher discount to net asset value (NAV, value of vessels and other assets, minus liabilities) than tanker stocks. Shares of food tankers “come from a lower starting point and they have narrowed the gap [between share price and NAV]”he said.

The value of the commodity tankers themselves is also growing in the used market, which increases the NAV owner. “NAVs are growing pretty fast and will continue to do so for no other reason than these companies making a lot of money,” Nolan said.

“Stocks of product tankers“ are traded close to fair value, but not with significant premiums to NAV, in a world where NAV is growing, ”he said.

Stocks for transportation in bulk

The owners of bulkers – ships carrying goods such as iron ore, coal, grain and minerals – will also publish a large increase in reserves. Golden Ocean (NASDAQ: GOGL) has risen 67% since the beginning of the year, Grindrod (NASDAQ: GRIN) by 59%, Eagle Bulk (NASDAQ: EGLE) by 48%, Genco Shipping & Trading (NYSE: GNK) by 42% and Star Bulk (NASDAQ: SBLK)) 41%.

Grindrod and Star Bulk reached a new 52-week high on Friday, Golden Ocean on Thursday.

Bets on major bulkers, known as Capesizes (with a carrying capacity of about 180,000 tons of deadweight or deadweight), used to lag behind smaller classes of bulkers, but are now leaping forward. Clarkson set Capesize’s spot rate at $ 37,500 a day on Friday, up 232% over the month. Tariffs on Panamaxes (65,000-90,000 DWT) are $ 30,300 per day. Tariffs on Supramaxes (45,000-60,000 DWT) are $ 30,800 per day.

Burke sees a positive side for the demand for bulk as a result of the Russian-Ukrainian war, as Europe bans the import of Russian coal and extracts it from more remote sources. (Demand for a ship is measured in ton-miles – volume multiplied by distance – so greater flight distance increases demand.)

“Coal has traditionally been purely neutral [for bulker demand] and became the main positive, ”he said.

Nolan expects that China’s demand for iron ore (used to produce steel) will return after the end of the COVID blockades, which should support Capesize rates.

“If bulk rates can stay at an average of $ 30,000, maybe a little more for Capes and a little less for smaller ships, these companies are going to make a lot of money,” Nolan said.

“Star Bulk has a floating dividend policy. And at such rates he can pay $ 8 or $ 10 in dividends. If a stock is worth $ 30, and if the stock price doesn’t rise, though I suspect it probably will, you’ll get a 30% return on your position with such dividends, even in the absence of capital growth. ”

Raw tanker, mixed fleet supplies

This year, tankers’ food rates have exceeded crude oil rates. Despite this, crude tanker stocks perform much better than broader stock indices. Nordic American Tankers (NYSE: NAT) has risen 58% since the beginning of the year, Euronav (NYSE: EURN) by 32% and DHT (NYSE: DHT) by 10%.

Shares of companies that own oil and food tankers are doing better than owners of crude oil tankers. Teekay Tankers (NYSE: TNK) has risen 72% since the beginning of the year, International Seaways (NYSE: INSW) by 59% and Frontline (NYSE: FRO) by 23%.

Teekay Tankers reached a new 52-week high on Friday, International Seaways on Wednesday.

Since the war began, smaller crude oil tankers have far outnumbered larger tankers. According to Clarkson, modern Aframaxes (tankers with a capacity of 750,000 barrels of crude oil) earned at spot rates of $ 28,800 a day on Friday. Bets on Suezmaxes (1 million barrels) were $ 17,200 per day. Bets on very large oil carriers (VLCC, 2 million barrels) were only $ 7,100 a day.

“The reason is that there are no Russian ports that can load VLCC,” Nolan said. “If Russia exports oil over much more distances [instead of to Europe]he will have to go to Aframaxes and Suezmaxes ”.

Stocks of container transportation

Container shipping remains by far the most profitable of all segments of shipping. However, container shipping stocks are under the most pressure because they are most directly prone to consumer sentiment towards inflation, and freight spot rates are at their peak.

Container stocks are now well below mid-March highs. However, they still outperform the broader stock market. Among the liner operators Zim (NYSE: ZIM), which has just reported its best quarter in history, has grown by 10% since the beginning of the year. Mattson (NYSE: MATX) was down 6%.

Among lessors, Danaos (NYSE: DAC) continued to rise 9%, while Global Ship Lease (NYSE: GSL) fell 3%.

“It simply came to our notice then we saw the peak of the bet“Nolan said. “The real question is what the slope of the line is and how steep [the decline is]. I guess the slope will be a little steeper than my counterparts.

“In terms of stock price, it’s difficult. Because if you think the market is softening, it’s hard to buy stocks. Another big concern is the order book [for new container ships]. When I look at the order book for 2023 and 2024, I just roll my eyes and think, “Here we are again.”

“On the other hand, these companies make so much money,” Nolan said. If freight and charter rates don’t fall too much in the second half, container stocks will be “trading in tiny fractions of the usual [price-to-earnings] several, and the money received can be converted into balance sheets. “

Burke sees further growth for container shipping stocks. Even if spot rates ease, stocks may trade at higher multiples if investors conclude that the conditions for increased returns will last longer than they currently expect. Highlighting the potential longevity of the boom, Global Ship Lease recently provided a 48-52-month charter for one of its ships, which will not even begin until July 2023 – more than a year later.

“The balance of the liners has never been in the best condition,” Burke said. “For companies that rent liners, the risk of counterparties is largely absent. Yes, spot rates are starting to fall, but they are falling from very high levels, and the risk has dropped significantly for the whole structure of the container business. ”

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