Global Hunter Securities on Shipping: Still Afloat in Troubled Waters (STNG, TNP, SFL, NNA, OSG NAT)

September 13, 2012 9:14 AM EDT
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Global Hunter Securities on Shipping: Still Afloat in Troubled Waters

Analyst, Natasha Boyden, said, "Global oil consumption has risen from 67.6 million barrels per day (mbpd) in 1993 to 87.9 mbpd in 2011, or at a CAGR of 1.4%, according to the EIA. However, growth over that time period has been uneven. Oil consumption from OECD countries grew at a CAGR of 1.1% from 1993 until a peak in 2005. Since then, OECD oil consumption has actually declined at a 1.3% annual rate. On the other hand, non-OECD countries have been consistently growing at a 3.0% CAGR since 1993. As such, all the growth in crude oil consumption since 1995 has come from the non-OECD nations, particularly in Asia. In terms of shipping, this has created many changing dynamics in terms of new shipping routes. On the whole, however, the distance from the Middle East to Asia is much less than the distance from the Middle East to the U.S. and Europe."

"Similarly to the dry bulk sector, heavy newbuild orders in 2006 and 2007 caused the orderbook to balloon to a peak of 49% of the world's fleet in September 2008. These orders began entering the fleet in 2008, and after four full years of heavy newbuild deliveries, combined with a sharp fall-off in newbuild contracts, the orderbook has fallen back to a more normal level of 13% of the world’s fleet. However, due to the newbuild delivery schedule combined with sustained high scrapping rates in the past few years (particularly from the clearing out of the remaining single-hulled ships), the tanker fleet now has very few ships older than 20 years remaining. Nevertheless, with the absolute level of the orderbook currently so low, we expect 2012 and 2013 net fleet growth to be 5.5% and 3.6%, respectively."

"We are initiating coverage of six companies in the tanker universe. In the current market environment, we believe that companies with low leverage, modern fleets and experienced management teams should outperform the sector over the long term, and therefore deserve premium valuation multiples. We are initiating coverage with a Buy rating on Scorpio Tankers (Nasdaq: STNG) and Tsakos Energy Navigations (NYSE: TNP), an Accumulate rating on Ship Finance International (NYSE: SFL); a Neutral rating on Navios Maritime Acquisition Corp (Nasdaq: NNA) and Overseas Shipholding Group (NYSE: OSG), and a Reduce rating on Nordic American Tankers (NYSE: NAT)."

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