Yard response and dry bulk qualms

Our trip to South Korea and China revealed Chinese shipbuilders are seeking growth to take on Korea’s established yards who are facing constraints. An eagerness to add capacity is one of our takeaways, as well as a gloomy outlook for Chinese real estate, which in our view should inevitably weigh on dry bulk demand.

A brewing challenge for the yards

Our 17th Annual Energy & Shipping Conference was well attended by investors and industry executives showcasing the still-growing interest for the sectors. Limited yard capacity is fuelling high newbuilding prices and raising freight rate expectations for the vast fleet renewal necessary in the coming decade. Long lead times underpin a bullish supply story for much of shipping in the coming years, albeit exposed to geopolitical risks affecting trade patterns. Our overall impression was general op...

BW LPG (Buy, TP: NOK196.00) - Bound to rebound

Despite a disappointing Q4 report and weaker market for US propane exports hampering recent rate momentum, we still believe BW LPG is attractively valued and freight markets should stay healthy on rebounding US production and slowing demand. We forecast cNOK50 DPS and net cash position of cNOK20/share by end-2026. Even on all-time low asset values leaves another cNOK75/share and limited downside risk, with attractive exposure to the market recovery. We reiterate our BUY, but have cut our target ...

BW LPG (Buy, TP: NOK204.00) - Dividends set to flow to shareholders

VLGC spot rates are down c80% from the peak, along with large draws on US inventories last week (11%) during cold weather. However, the US-Far East arbitrage is again trending up and implies cUSD60k/day rates, as an outlook for warmer US weather should allow propane inventories to remain above the 5-year average, which leaves potential for another rate upswing. We estimate a c32% dividend yield for Q4–Q1 and c23% for the next 12 months, the highest among LPG peers. We reiterate our BUY but have ...

US chill set to cool VLGC markets

News of abnormally low temperatures in the days ahead could see US domestic propane demand tailwinds shift to headwinds and potentially threaten LPG exports, as we believe inventory levels could be tested. The US–Far East arbitrage has narrowed from USD380/tonne to USD200/tonne and spot rates are starting to slip as we head into the low season. While the fundamentals still look appealing to us in the medium and long term, we find considerable risk of negative momentum in freight markets based on...

BW LPG (Buy, TP: NOK212.00) - Strong cash flow set to keep coming

We believe BW LPG represents a solid value proposition amid a strong VLGC market, which is fuelling FFAs of cUSD90k/day for 2024 and cUSD65k/day for 2025. Hence, there is a theoretical potential to lock in c60% of the market cap in cash flow by end-2025e, and near-term we expect the Q3 run-rate dividend yield of ‘just’ 22% to expand to >30% on delayed revenue recognition and a vessel sale during Q4 and Q1. We reiterate our BUY and have raised our target price to NOK212 (210).

BUYs with much to look forward to

The VLGC market has gone from strength to strength in a year that looked set to be hit by a daunting delivery schedule. Although we are not yet out of the woods, the market’s underlying vigour is building confidence in lasting returns, most notably from elevated US inventory, promising export growth and attractive arbitrage. Current forward FFAs are highly supportive for asset valuations, and we expect VLGC values to increase. Hence, we believe the VLGC equities at ~1.0x EV/GAV represent attract...

BW LPG Ltd: 2 directors

Two Directors at BW LPG Ltd sold/subscribed to 8,401,200 shares at 120.000NOK. The significance rating of the trade was 72/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the last two ...

BW LPG (Buy, TP: NOK147.00) - Still lagging behind peers

We expect continued strong earnings in H2, but see potential headwinds from mean-reverting US demand and the full effect of the heavy 2023 delivery schedule. However, the forward market is still indicating strong VLGC earnings potential for 2024 and 2025 of cUSD50k/day, providing possible upside to our 2024–2025e EBITDA. Also, we believe the announced work towards a dual US listing could help reduce the valuation discount to peers. We reiterate our BUY but have trimmed our target price to NOK147...

BW LPG (Buy, TP: NOK148.00) - Upside potential on strong markets

We expect still-strong earnings towards end-2023, but see potential headwinds from US demand reverting to the mean and the heavy delivery schedule taking full effect. However, FFAs indicate solid VLGC earnings potential of USD50k/day for 2024e and 2025e, suggesting 65% and 37% upside potential to our EBITDA estimates, respectively – possibly adding 26% of the current market cap in cash flow on top of our 2024–2025e. On a still-attractive EV/GAV of 0.7x, we reiterate our BUY but have cut our targ...

BW LPG Minor model adjustments

We have updated our estimates for the Q1 results, the Q2 guidance, dividend expectations, and adjustments to depreciation following the acquisition of Vilma. We forecast a decent USD0.80 DPS for Q2, supported by solid markets and a positive cash contribution from the sale of vessels, which would give a run-rate dividend yield of ~38% (adjusted for Q1 DPS). However, we do not consider these changes to be material, and we have not changed our BUY recommendation. We have raised our target price to ...

Northern Lights

Northern Lights

BW LPG (Buy, TP: NOK145.00) - c70% potential upside to 1.0x NAV

2023 has thus far seen constructive shipping demand (up 14% YTD YOY), aided by US volumes, and the latest uptick in freight rates contrasts with concerns about the 13% deliveries this year. Thus, we await shifting investor sentiment as BW LPG continues to screen attractively with an EV/GAV of 0.63x versus the 2018–2019 average of c0.9x, while the current FFA curve implies USD40k+/day for the rest of 2023. We reiterate our BUY and have raised our target price to NOK145 (141).

Generally an optimistic bunch

DNB hosted its 16th annual Energy & Shipping Conference. On day two, we hosted sector panels and presentations for dry bulk, LPG, car carriers, LNG and tankers with senior management representatives from 29 shipping companies. A resurging Chinese economy coupled with tight supply outlook, strong demand growth potential and regulations putting pressure to remove older vessels were among the common themes. Overall, the discussions showcase optimism across the sectors.

BW LPG (Buy, TP: NOK141.00) - Energy shipping at 0.7x EV/GAV

We continue to see BW LPG as the go-to stock for LPG shipping exposure given its scale, track record and discounted valuation to peers (EV/GAV 0.7x). Rates are spiking at a time when freight markets typically slump, as the US is full to the brim with potential volumes for export and demand still looks strong in Asia. As focus turns from bearish tales of substantial deliveries for 2023 to limited fleet growth potential beyond, we believe the valuation gap will close. We reiterate our BUY and have...

Share prices suggest 2024–2025e at an all-time low

The seasonal February trough for VLGC markets is nearing, but US inventories and current arbitrage look supportive of freight rates near-term. The fundamentals look attractive longer-term, with US export growth poised to outpace fleet growth. Meanwhile, the stocks in our universe have implied values far below quotes and share prices are discounting cUSD10k/day markets for 2024–2025e. We reiterate BUY on all three covered companies, with BW LPG our top sector pick at an EV/GAV of 0.63x.

Sector Fast Comment - ABGSC Shipping Daily

Mixed tanker market, dry bulk and LPG down Shipping peer group trades as P/NAV 0.89x US LPG fundamentals still solid

Sector Fast Comment - ABGSC Shipping Daily

Tankers and LPG up, dry bulk down Shipping peer group trades at P/NAV 0.88x Gas prices indicate floating storage only for Oct-Nov’23

Sector Fast Comment - ABGSC Shipping Daily

Tankers and LPG up, dry bulk down Shipping peer group trades at P/NAV 0.88x Oil tanker sector report: Not enough tankers in ‘24