Drewry Maritime Equity Research (DMER) revisits how the rout in oil prices proved a source of great distress for investors in 2015, and analyse if this presents an opportunity to take contrarian bets on the sector in 2016.
The downward trend in share prices that started in 4Q14 intensified in 2015 as falling oil prices marred investor sentiment. The broad-based sell off in gas shipping stocks wiped out USD 5.7bn of cumulative market capitalisation of our coverage universe, translating into a 49% loss in 2015. Underwhelmed by the downward spiralling stock prices, some market participants resorted to buying back shares to underpin their confidence in the gas shipping business, while some were opportunistic and tried to increase their holdings. During the year, we also saw that tonnage operators proactively came together to improve dwindling fleet utilisation and save operating costs.
Devanshu Saluja, Vivek Shah and Rahul Kapoor, analysts at DMER stated, “The plunge in the crude oil price came like a thunderclap for investors, who scurried to reduce exposure to energy stocks including LNG/LPG shipping counters. The analyst community turned negative on the gas shipping sector, as reflected in earnings estimate downgrades for FY16. The fate of the gas shipping stocks is closely tied to the rebound in oil prices, which looks implausible in the near term. Investors should place bets on the companies with distinguished business models and avoid the temptation of turning contrarian just now as there could be some more pain to come”.
As 2015 proved to be a roller-coaster ride for gas shipping investors, we recommend investors to take exposure in companies that have the advantage of being in a niche segment and reasonably sound balance sheets. While we concur that the overhang of low oil prices will remain on our gas shipping universe, investors should take note of the companies with distinct advantage over peers and take this opportunity to accumulate such stocks at historic low valuations. Our top two picks for 2016 are: Golar LNG and Navigator Holdings