OSG, TEN and Teekay Corp downgraded

Friday, 17 April 2009

J.P. Morgan has joined a rising chorus of investment banks downgrading share ratings and share price targets for tanker operators. J.P. Morgan is forecasting “a weak tanker rate environment through the third quarter” which “would likely hurt the companies' near-term earnings potential”, Reuters reported. Tsakos Energy Navigation (TEN) has been downgraded from 'neutral' to 'underweight' while Overseas Shipholding Group, Inc (OSG) and Teekay Corporation have been downgraded from 'neutral' to 'overweight'.

Share price targets for TEN, OSG and Teekay Corp were cut from $18 to $14 per share, $45 to $27 per share and $21 to $15 per share respectively. According to J P Morgan analyst Johnathan Chappell, the “massively over-tonnaged” spot market has pushed rates across the board down to around and below break-even rates.Chappell was quoted saying that “a reversal of this rate pressure appeared unlikely in the short term.”He added that asset prices may be the 'next shoe to drop', hurting equity valuations and even potentially leading to some debt covenant breaches.“In addition to the lower earnings and cash flows that will likely result from plummeting spot rates, tanker asset values, estimated to be down 25% to 33% already from summer highs, may face further near-term declines as return expectations are adjusted downward,” he said.

Aside from J P Morgan, Danish investment bank and brokerage Carnegie has cut its share rating for fellow Danish tanker operator TORM from 'neutral' to 'under-perform'.According to Carnegie, tanker rates have now dropped below operating expenses. New York-headquartered investment bank Dahlman Rose & Company, LLC also revised its share ratings and share price targets for several tanker operators downwards earlier this week.

Dahlman Rose analyst Omar Nokta downgraded DHT Maritime Inc. from 'buy' to 'hold' on a dividend cut expectation in the second quarter of this year and a fall in the company's revenues from its partnership with Overseas Shipholding Group Inc (OSG) on the back of slumping spot rates. Omega Navigation Enterprises, Inc.'s rating has been slashed from 'hold' to 'sell' due to falling profits as about half of its product tanker fleet exited charters mid last year and suffered slumping spot rates in the product tanker segments. Nokta was quoted saying that “the recent fall in asset values has pushed the market value of Omega's products tanker fleet much closer to its outstanding debt and accordingly we believe it is near breach of its loan covenants." Share price targets for Ship Finance International, Teekay Tankers Ltd. and General Maritime Corporation were cut from $20 to $15 per share, $14 to $12 per share and $13 to $10 per share respectively.

Source: TankerWorld