Turbulence in the global equity markets has shaved one-third off the value of shipping stocks in a non-fundamental correction, according to Arctic Securities.
Analysts Jo Ringheim and Lars Bastian Ostereng note the sell-off has effectively taken steel and earnings valuations back to financial crisis levels.
“Looking at market fundamentals, we continue to see numerous reasons for excitement,” the pair wrote in their latest shipping quarterly.
“Supply growth looks manageable on the back of limited ordering and sliding orderbooks, while seaborne trade continues to grow steadily. We still expect that the upcoming IMO 2020 regulations will boost earnings for scrubber-fitted vessels and have a supportive impact on market balances.”
The analysts identified tankers and LNG as the standout segments, but noted the sell-off has created opportunities in other areas of the industry.
“Company valuations tend to correlate strongly with the physical market,” Ringheim and Ostereng said, noting bulker shares jumped 75% in three months during 2017.
“Given the leverage in listed equities, we estimate that both tanker and bulker stocks could surge 50% to 150% if ship values return to 2014 and 2015 levels,” they added.
Frontline, DHT Holdings and ADS Crude are Arctic’s top tanker picks, while Awilco and Flex were singled out in the LNG peer group.
This article has been updated since first publication. An earlier draft placed Ardmore as a top tanker pick rather than ADS Crude.
