LPG Shipping (BUY) - Cyclical Peak Ahead - Juli d. 10. 2021
With lengthy tonnage lists and low exports from both US and AG, spot rates have fallen back towards opex. However, we see this as a temporary setback, and believe the cyclical peak is still ahead of us. With limited fleet growth until 2023E and an expected strong demand rebound from 2H21E, we maintain our BUY rating on the segment and see a 57% upside to our VLGC share index from current levels.
Market: With an abundance of tonnage in AG and the uninspiring sentiment after the recent OPEC+ meeting, owners are hopeful that the upcoming acceptances could at least keep them afloat. The US/FE arbitrage is slightly supportive, but US inventory builds are needed to lower the six-year-high Mt Belvieu propane prices in order to support higher freight. With our forecast of rising US oil & gas production concurrent with increasing OPEC+ output from 2H21E and into 2022E, we see VLGC demand growth reaching 13% in 2022E, significantly outpacing VLGC supply growth at only 4%. With the orderbook vs fleet now at 24%, we expect a cyclical contraction from 2023E. However, we believe it is too early to price this in as we see spot rates potentially reaching $100k+ per day and asset prices +20% by end-2022E, generating significant cash flow and NAV upside over the next two years.
Investments: Shipping is cyclical, and investors tend to look at most 1.5 years ahead in time. With our VLGC share price expected to rise 57% over the next year in concert with rising earnings and asset prices, we maintain our BUY rating on the VLGC segment. Our top pick is Avance Gas, with a 53% upside to our N55 TP, closely followed by BW LPG (+47%) and Dorian LPG (+48%). Since we started covering VLGCs in 2014, we have 96% return on our recommendations vs the market at -36% & consensus at -33%.
Den fulde rapport: https://www.cleaves.no/post/lpg-shipping-buy-cyclical-peak-ahead
With lengthy tonnage lists and low exports from both US and AG, spot rates have fallen back towards opex. However, we see this as a temporary setback, and believe the cyclical peak is still ahead of us. With limited fleet growth until 2023E and an expected strong demand rebound from 2H21E, we maintain our BUY rating on the segment and see a 57% upside to our VLGC share index from current levels.
Market: With an abundance of tonnage in AG and the uninspiring sentiment after the recent OPEC+ meeting, owners are hopeful that the upcoming acceptances could at least keep them afloat. The US/FE arbitrage is slightly supportive, but US inventory builds are needed to lower the six-year-high Mt Belvieu propane prices in order to support higher freight. With our forecast of rising US oil & gas production concurrent with increasing OPEC+ output from 2H21E and into 2022E, we see VLGC demand growth reaching 13% in 2022E, significantly outpacing VLGC supply growth at only 4%. With the orderbook vs fleet now at 24%, we expect a cyclical contraction from 2023E. However, we believe it is too early to price this in as we see spot rates potentially reaching $100k+ per day and asset prices +20% by end-2022E, generating significant cash flow and NAV upside over the next two years.
Investments: Shipping is cyclical, and investors tend to look at most 1.5 years ahead in time. With our VLGC share price expected to rise 57% over the next year in concert with rising earnings and asset prices, we maintain our BUY rating on the VLGC segment. Our top pick is Avance Gas, with a 53% upside to our N55 TP, closely followed by BW LPG (+47%) and Dorian LPG (+48%). Since we started covering VLGCs in 2014, we have 96% return on our recommendations vs the market at -36% & consensus at -33%.
Den fulde rapport: https://www.cleaves.no/post/lpg-shipping-buy-cyclical-peak-ahead
