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Jørgen Lian
  • Jørgen Lian

Scorpio Tankers Minor model adjustments

We have updated our estimates following the Q3 report and Q4 guidance. We have lowered our 2024e adj. EBITDA by 4% and 2025–2026e by 2%. We still see attractive cash flow potential (~21% FCF yield on our 2025e) and find the current P/NAV of ~0.70x (stock down ~20% since early October) supportive for continued capital returns through share buybacks and an attractive risk/reward. We do not consider our estimate changes to be material, and we have not changed our BUY recommendation. We reiterate ou...

Jørgen Lian
  • Jørgen Lian

Scorpio Tankers (Buy, TP: USD93.00) - Robust cash-flow potential

Despite a seasonal slowdown, Q3 average product tanker rates were ~20% above the 5-year average, while near-term fundamentals seem intact, with 2024e tonne-mile growth set to outpace supply growth. Our 2025e fleet-wide TCE of USD28.5k/day implies still-strong cash-generation potential (~19% FCF yield) and is supportive of continued accretive buybacks through the company’s share repurchase programme. We reiterate our BUY but have cut our target price to USD93 (95).

Jørgen Lian
  • Jørgen Lian

Scorpio Tankers (Buy, TP: USD95.00) - Appealing value accretion

Despite slightly soft Q3 guidance, we see ongoing strength in the product tanker market, with average rates 61% above the 5-year average for the current month. Scorpio Tankers’ reduced cash breakeven following USD399m in debt repayments in Q2, and its reloaded share buyback programme of USD400m, should leave ample room for continued accretive capital returns through share repurchases at its current discount to NAV (we calculate P/NAV of 0.85x). We reiterate our BUY, but have trimmed our target p...

Jørgen Lian
  • Jørgen Lian

Scorpio Tankers (Buy, TP: USD96.00) - Focus shifting to capital return...

We expect the ongoing strength in product tanker freight markets and Scorpio Tankers’ reduced cash breakeven after the latest USD223.6m unscheduled debt prepayment to support cash flows going forward, which we believe will be increasingly directed to shareholders as the indicated debt targets are reached. Hence, focus will be on the Q3 outlook and capital allocation in its Q2 report due pre-market on 30 July. We reiterate our BUY and have raised our target price to USD96 (92).

Dave Nicoski ... (+2)
  • Dave Nicoski
  • Ross LaDuke

Vermilion Compass: Weekly Equity Strategy

New All-Time Highs Validates Our Bullish Outlook We continue to view the latest pullback to the 100-day MA on the S&P 500 as healthy and normal within the ongoing bull market, and our bullish outlook (since early-November 2023) remains intact. Throughout the last week of April, we discussed the possibility that further downside was limited (4/23/24 Compass) and the mounting evidence that led us to believe the lows were likely in for this pullback (4/30/24 Compass). Market dynamics remain health...

Jørgen Lian
  • Jørgen Lian

Scorpio Tankers (Buy, TP: USD92.00) - Set to pivot from debt to distri...

We see ongoing support for the product tanker markets from geopolitics and a fundamentally strong supply and demand outlook even though the orderbook is creeping up. We would expect Scorpio Tankers to redirect cash flows to shareholder returns when it hits its debt target. We estimate current rates leave more than USD4/share in quarterly firepower (23% yield), with the stock now trading at a P/NAV of 0.9x. We reiterate our BUY, and have raised our target price to USD92 (83).

Jørgen Lian
  • Jørgen Lian

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...

Jørgen Lian
  • Jørgen Lian

Scorpio Tankers (Buy, TP: USD83.00) - Fast-tracking distributions

Scorpio Tankers’ strong cash flow has shortened its runway towards its (unofficial) net debt target (we forecast Q2), at which point we see its substantial distribution potential being unleashed as a potential catalyst. We find its 0.83x P/NAV pricing offers investors attractive exposure to its premium-earning fleet generating solid cash flow amid a multi-year upcycle we believe is still in the early stages. We reiterate our BUY and have raised our target price to USD83 (82).

Jørgen Lian
  • Jørgen Lian

Scorpio Tankers (Buy, TP: USD82.00) - Exceptional cash flows

Scorpio Tankers’ NAV is up 50% YOY, benefiting from well-timed, aggressive share buybacks and vessel values at 16-year highs. We believe the next step for the company is to realise its substantial distribution potential, with its unofficial USD800m net debt target possibly just around the corner as LR2 spot rates now have surpassed USD100k/day. We reiterate our BUY and have raised our target price to USD82 (75.9).

Jørgen Lian
  • Jørgen Lian

Scorpio Tankers (Buy, TP: USD75.90) - Higher shareholder return visibi...

Scorpio Tankers is flexing the muscles of its modern, scrubber-fitted eco fleet, beating Q3 consensus and, in our view, ensuring even stronger earnings for Q4. Management has mapped out a debt repayment runway, which we believe could see Scorpio Tankers’ churning out a ~20% FCFE yield at current TC rates. However, with the fleet’s constrained delivery schedule, high shipyard utilisation, low shipyard capacity, and still-significant fleet replacement potential, we continue to see upside potential...

Dave Nicoski ... (+2)
  • Dave Nicoski
  • Ross LaDuke

Vermilion Compass: Weekly Equity Strategy

Bullish Breadth Divergences Persist The S&P 500 is just below 4165-4200 support, and the Nasdaq 100 (QQQ) is just below $350-$355 support. Given they were only 1%-1.5% below these supports at last week's lows, we cannot call them "decisive" breakdowns quite yet. Regardless, these levels are now resistance (in addition to the 200-day MA on SPX), and they are important lines-in-the-sand moving forward. We cannot be bullish if the SPX and QQQ are below the aforementioned levels, but it would be bu...

Jørgen Lian
  • Jørgen Lian

Scorpio Tankers (Buy, TP: USD73.10) - Harbouring further value

The market appears to have left Scorpio Tankers behind in its re-rating of tanker stocks, with our peer group trading at a ~1.0x P/NAV, versus the company’s 20% discount. We continue to find the cash generation potential in Scorpio Tankers substantial, yielding tangible return catalysts as its sizeable liquidity buffer potentially translates to increased shareholder distributions through more buybacks and higher dividends. Against a backdrop of still-strong fundamentals, which should cement cons...

Dave Nicoski ... (+2)
  • Dave Nicoski
  • Ross LaDuke

Vital Signs: Actionable charts

In this product we rank the most positive and negative domestic stocks, filter the symbols by market-cap and trading volume, and then divide the companies into sectors and groups. We then manually look through charts leadership/changes, bottoms-up/top-down ideas, short-term patterns that may have long-term significance, etc. We believe you will find this product valuable as significant price and relative moves begin in the daily charts.

Dave Nicoski ... (+2)
  • Dave Nicoski
  • Ross LaDuke

Vermilion Compass: Weekly Equity Strategy

Pause/Pullback Continues But Oversold Bounce Likely Support levels discussed in our 8/8/23 Compass broke, leading to a change in character and a deeper pullback. Supports we were watching included the 50-day MA and 4460-4475 on the S&P 500, $371.50 on the Nasdaq 100 (QQQ), and $190-193 on the Russell 2000 (IWM); as long as these indexes are below these levels, we believe the pause/pullback that we discussed in our 8/15/23 Compass is likely to continue. Longer-term support on the S&P 500 is at 4...

Jørgen Lian
  • Jørgen Lian

Scorpio Tankers (Buy, TP: USD69.90) - Comfortable LTV = higher returns

Scorpio Tankers recorded another quarter of strong earnings in Q2, and we see capacity for a potential ~12% run-rate earnings yield in Q3 (seasonally the softest quarter). We believe its considerable liquidity buffer, together with a favourable market outlook, should translate into increased shareholder returns in the coming quarters. The current 22% discount to NAV suggests an attractive risk/reward given still-strong product tanker fundamentals. We reiterate our BUY and have raised our target ...

Jørgen Lian
  • Jørgen Lian

Scorpio Tankers (Buy, TP: USD68.50) - Attractive on current multiples

Product tanker rates are facing demand headwinds into the low season but have stabilised above historical averages, which bodes well for seasonally stronger H2e earnings. The effect of trade disruptions seems to be smoothing out, but Scorpio Tankers still screens attractively to us on its 0.69x P/NAV pricing. We reiterate our BUY but have cut our target price to USD68.5 (71.1).

Jørgen Lian
  • Jørgen Lian

OPEC headwinds into low season

Saudi Arabia has added to softening tanker markets with an additional 1mbpd cut until at least July, while voluntary cuts have been extended until end-2024. This means less tanker demand (~2% in aggregate, ~3% for VLCCs) and should weigh on near-term earnings potential for tanker stocks. However, we still find current valuations and the long-term backdrop of limited supply growth and steadily improving oil demand appealing for the outlook into the winter and beyond.

Jørgen Lian
  • Jørgen Lian

Scorpio Tankers (Buy, TP: USD71.10) - Freight rates and shares divergi...

Scorpio Tankers traded down c6% yesterday despite QTD fixtures indicating upside to near-term consensus. We see transitory valuation discounts as attractive entry opportunities in light of the stock’s c25% discount to NAV, c30% run-rate earnings yield supported by Q2 fixtures, and intact long-term fundamentals. We reiterate our BUY and USD71.1 target price.

Jesper Ingildsen ... (+7)
  • Jesper Ingildsen
  • Johan Skoglund
  • Johannes Grunselius
  • Jørgen Lian
  • Niclas Gehin
  • Ole-Andreas Krohn
  • Stefan Gauffin
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