Scorpio Tankers secures third stock upgrade

Clarksons Platou Securities analysts the latest to boost rating on products tanker owner after liquidity efforts.

A run of upgrades for Scorpio Tankers has continued with Clarksons Platou Securities the latest to raise its rating on the shipowner in the wake of efforts to boost liquidity.

Analysts Herman Hildan and Frode Morkedal lifted the New York-listed owner from neutral to buy, noting a combination of a dividend cut and added liquidity from a sale-and-leaseback had significantly reduced risks.

“While market challenges still persists, which could lead to drained liquidity if spot rates stay below break-even for longer than expected, we see further sale-and-leasebacks as the key source of liquidity which could likely be replicated if needed,” the analysts wrote.

Morgan Stanley and Deutsche Bank have also increased their ratings on Scorpio Tankers after its fourth quarter report this week revealed a dividend reduction would save $80m a year and a leaseback deal involving three vessels would add almost $30m in liquidity.

“With the product tanker cycle likely turning up again due to the limited orderbook and the likely improved rates from 2018 and 2019, we are encouraged by the balance sheet actions and therefore find risk/reward more attractive,” Hildan and Morkedal said.

Scorpio Tankers recorded an adjusted net loss of $29.4m for the fourth quarter. Its adjusted loss of $0.18 per share was a penny better than Wall Street analysts had projected.

President Robert Bugbee said as a shareholder he saw “far better uses” of the capital today than paying a dividend given the "real excitement" around products tankers from the end of this year.

Bugbee said on a conference call the company believed “now is the time to put risk on” and suggested earnings and cash flow would “rip” when the recovery arrives.

For 2016, Scorpio Tankers posted an adjusted loss of $10.4m, compared with a profit of $221.3m in 2015.

Bugbee believes in an improving market annual results could return to 2015 levels or higher, suggesting a profit of $2 per share was possible given fleet growth in the interim.

Clarksons Platou Securities forecasts a loss of $55m for Scorpio Tankers in 2017.

A return to the black is expected in 2018 with a profit of $15m, a figure it believes will grow to $174m in 2019.

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13 Feb 14:23 GMT