28.03.2008 - Welcome change for US shipping

An overall market rally on Wall Street helped to lift a broad array of shipping shares this week.

Tanker owners, bulker owners, bunkering companies, tweendecker operators and barge players all posted double-digit gains. Much of the surge came Monday, when a broad rally on favourable US economic data lifted all but two shipping companies on major US exchanges.

While the week's beneficiaries included everyone from US barge owner Kirby Corp, up 27%, to Greek bunkering specialist Aegean Marine Petroleum, up 20%, and several dry-bulk operators, it was a pair of tanker companies whose gains were most intriguing.

New York-based Overseas Shipholding Group (OSG) rose 24% in the days after John Fredriksen and his Frontline Ltd took a 5.2% stake with a forward option to fatten the holding to 9.6% by late May.

OSG shares had been sagging at some 60% of the company's net asset value (NAV) before Fredriksen's move.

But the effect seemed to spread beyond OSG, as rival Teekay Corp also rose 24% from its own sluggish trading level.

"Tanker equities have come under significant pressure lately due to global concerns of an economic slowdown as well as doubts as to the sustainability of currently strong tanker rates," wrote analyst Omar Nokta of Dahlman Rose in a research note. "We believe Frontline's stake in OSG at the very least substantiates current market values."

Teekay and OSG had been two of the three weakest tanker equities against Nokta's NAV calculations with Tsakos Energy Navigation (TEN) squeezing between them. Nokta has "buys" on all three, along with a raft of tanker peers, and seemed encouraged by the Fredriksen move. "We expect tanker stocks to see solid support on the back of the Frontline stake in OSG," he said.

As a group, public tanker stocks had been trading at only 79% of NAV at the time of Nokta's report, suggesting investors had little faith that future rates would be sufficient to support private tanker valuations at current lofty levels.

Joe Brady, Tradewinds

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