THE RATINGS GAME
Oil-tanker stocks cut on spot-market concerns
But Jefferies likes tanker firms with longer, time-charter contracts
By
Padraic Cassidy, MarketWatch
Last Update: 12:47 PM ET May 1, 2006
NEW
YORK (MarketWatch) -- Jefferies & Co. analysts downgraded shares of
five oil tanker shippers Monday, predicting that charter rates on the
spot market to move petroleum will decline in 2006 and 2007.
Jefferies moved Frontline Ltd.
(FRO
:
frontline ltd shs
Last:
37.10-0.51-1.36%8:08pm 07/14/2006
Delayed quote dataSponsored by:
![]()
FRO37.10,
-0.51,
-1.4%
)
, General Maritime Corp.
(GMR
:
general maritime corp shs
Last:
37.15+0.58+1.59%8:08pm 07/14/2006Delayed quote dataSponsored by:
![]()
GMR37.15,
+0.58,
+1.6%
)
, Teekay Shipping Marshall Island
(TK
:
teekay shipping marshall islnd com
Last:
40.80-0.21-0.51%8:15pm 07/14/2006
Delayed quote dataSponsored by:
TK40.80,
-0.21,
-0.5%
)
and A.S. Dampskibsselskabet Torm
(TRMD
:
a s dampskibsselskabet torm sponsored adr
Last:
44.94-0.41-0.90%6:40pm 07/14/2006Delayed quote dataSponsored by:
![]()
TRMD44.94,
-0.41,
-0.9%
)
from buy to hold, saying the shares are fairly valued. Knightsbridge Tankers Ltd.
(VLCCF
:
knightsbridge tankers ltd ord
Last:
26.89-0.10-0.37%6:40pm 07/14/2006
Delayed quote dataSponsored by:
VLCCF26.89,
-0.10,
-0.4%
)
, which Jefferies said was overvalued, was downgraded to sell from hold.
"Given the historical relationship between spot market charter rates
and tanker share price performance, we believe the anticipated
declining charter rate environment is likely to continue to pressure
the shares of tanker companies with significant spot market exposure as
it has since charter rates achieved a cyclical peak in November 2004,"
wrote analyst Douglas Mavrinac.
But the shares of the companies with
spot-market exposure could also receive support from firm underlying
asset values, Jefferies said.
The analysts reiterated buy ratings on other tankers with spot-market concerns, including OMI Corp.
(OMM
:
omi corp new com
Last:
20.97-0.03-0.14%8:12pm 07/14/2006
Delayed quote dataSponsored by:
OMM20.97,
-0.03,
-0.1%
)
, Overseas Shipholding Group Inc.
(OSG
:
Overseas Shipholding Group, Inc.
Last:
59.65+0.36+0.61%8:12pm 07/14/2006
Delayed quote dataSponsored by:
OSG59.65,
+0.36,
+0.6%
)
and Tsakos Energy Navigation Ltd.
(TNP
:
tsakos energy navigation ltd shs
Last:
42.65-0.14-0.33%8:15pm 07/14/2006Delayed quote dataSponsored by:
![]()
TNP42.65,
-0.14,
-0.3%
)
.
Those companies have a more balanced chartering approach, securing
longer, time-charter contracts and a more consistent revenue that comes
with them.
Jefferies also reiterated buys on Arlington Tankers Ltd.
(ATB
:
arlington tankers ltd com
Last:
22.50-0.31-1.36%8:04pm 07/14/2006
Delayed quote dataSponsored by:
ATB22.50,
-0.31,
-1.4%
)
, Aries Maritime Transport Ltd.
(RAMS
:
aries maritime trnsprt ltd shs
Last:
9.75-0.01-0.10%6:40pm 07/14/2006
Delayed quote dataSponsored by:
![]()
RAMS9.75,
-0.01,
-0.1%
)
and Ship Finance International Ltd.
(SFL
:
ship finance international ltd shs
Last:
18.08+0.07+0.39%8:14pm 07/14/2006
Delayed quote dataSponsored by:
SFL18.08,
+0.07,
+0.4%
)
because each has significant time-charter coverage and an "attractive" valuation.
"In fact, each company has already secured employment for every vessel
in the respective fleets with all operating on time charter contracts
with minimum guaranteed rates and many operating on time charter
contracts that provide upside through profit sharing arrangements," a
Jefferies report to investors said.
The long-term outlook for the tanker market remains attractive, according to Jefferies.
"We believe product tanker demand should remain firm over the next two
years as the growing dislocation of refining capacity should continue
to stimulate product tanker demand," Mavrinac wrote. "We believe a
shortage of product tanker capacity could develop in the 2009-2010
timeframe without additional new building orders."
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