BW: The world's largest VLGC fleet.

Arctic backs LPG duo

Arctic Securities has placed buy ratings on two Oslo-traded VLGC owners that are expected to cash in while the sun shines in the sector.

Both BW LPG and newcomer Aurora LPG were today given the top rating as analyst Erik Nikolai Stavseth predicts good times for VLGC rates before a large orderbook begins to weigh on the market in 2016.

BW, as the market leader, is set to cash in on the boom in VLGC rates, with Stavseth projecting core operating profit to hit $354m this year and $372m in 2015. 

Reflecting on BW’s dominant trading fleet and pending newbuildings, he says the company has 10 birds in the hand and two in the bushes. This provides instant gratification on current cash flow, Stavseth explains.

Aurora, which last week raised $50m from a private placement, is also set to flourish in the next couple of years as an “opportunistic and aggressive play on the VLGC market”, Stavseth said.

“Aurora will take an aggressive ‘last man standing’ chartering strategy in order to maximize freight revenues and return to shareholders – a strategy we think could be efficient over the next 18 months,” he said in a report said.

Arctic is expecting VLGC owners to enjoy a happy autumn with stocks and rates set to flourish in a seasonally strong period after a record start to this year.

With an orderbook equal to 50% of the fleet, however, Stavseth suggests the market may be overbuilt.

“My grandmother told me any market with 50% of current fleet in the orderbook will buckle,” he wrote.

He added: “The freight rate forecast for VLGCs is clearly complicated by the fact that we are in ‘uncharted’ territories – as clearly portrayed by the most recent spike where VLGC freight rates rose to over $100,000/day.

“At present, our orderbook stands at ~50% of the sailing fleet – a level which to us poses a serious threat to a sustained profitable market.

“In virtually no other shipping market have freight rates managed to hold up under the pressure of such high influx of tonnage over two to two and a half years.

“We think LPG shipping in this respect is no different from other segments despite the favourable demand dynamics in place.”


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