Frontline - Dip in Frontline’s stock prices in late September offers attractive entry point for investors

The Russia-Ukraine conflict proved to be a boon for the crude tanker market over the past nine months, with occasional corrections. The year began on a weak note amid the Omicron-led demand concerns and rising crude oil prices that affected seaborne trade and crude tanker day rates. However, the market dynamics turned favourable for tanker companies as the conflict led to a surge in spot TCE rates of
mid-sized crude carriers. Strong earnings of mid-sized crude carriers have supported the rally in stock prices of crude tanker companies. The sharp increase in VLCC spot earnings from mid-August further supported the uptrend in stock prices. Accordingly, the Drewry crude tanker equity index registered a substantial gain of 96.5% YTD despite a decline of 15.5% in late September because of news of political
uncertainty in China. Frontline’s (FRO’s) stock price mirrored the sector index as well as Euronav’s (EURN’s) stock price, especially after the merger between the two was announced in early April 2022 and FRO’s stock generated a return of 76.7% YTD. FRO’s underperformance compared to the sector index is attributed to the fleet composition of the company, as VLCCs account for nearly 44.8% on the water fleet and their spot earnings largely remained muted by the conflict.

We expect the mid-sized crude tanker day rates to remain strong; additionally, spot TCE rates of VLCCs have improved substantially and are expected to remain elevated on the back of firm seasonal demand in winter. Accordingly, we expect the company to record higher revenue and profitability in 2H22, and the recent dip in FRO’s stock price in late September offers an attractive entry point for investors.