Michael Webber says Tuesday’s announcement wasn’t a surprise given the age and diminished employment prospects facing the Front Viewer (built 1992) and Front Guider (built 1991), which Ship Finance International intends to offload in the coming weeks.
According to VesselsValue.com each of the vessels are worth around $9.5m in the scrap space and carry a demolition value that is roughly equal to what they would fetch if a buyer could be found in today’s sale-and-purchase market
The valuation database, which is maintained by UK shipbroker Seasure, claims the demolition and market values have been the same since the middle of last year when they might have gone for as much as $11m a piece at the time assuming its 2011 market assessment is on point.
Of the dozens of researchers who follow Frontline, David Beard of Iberia Capital Markets is one of the few who have encouraged investors to “buy” as he believes its stock is unlikely to slide below current lows.
New York-listed shares of the John Fredriksen-backed tanker operator shot up 2.33% to $3.33 in early afternoon trading. The premium paid Tuesday was $2.67 lower than the eternally optimistic researcher’s price target.
The estimate is far below that of another leading equity analyst, Jonathan Chappell of Evercore Partners, who reiterated his "underweight" rating and $2.00 forecast after warning clients that the earnings loss associated with the axed charters "more than offsets" a one-time gain of around $11m.
"The final two OBOs were still contracted at rates of roughly $64,000 per day, rendering the ships as two of the few assets generating a profit," he said, adding: "Although Frontline nets $11m from the transactions the earnings hit from the loss of the lucrative OBO contracts is material.
"We believe the modernisation of its fleet is a good move for Frontline except for the fact that process is being done through contraction as opposed to expansion. We continue to believe that Frontline will not expand its fleet or return to a dividend payout in the near future, and with a NAV estimate below zero we do not see any equity value in the shares today."
