First published in TradeWinds 09 December 2024.
The stock rally for shipping companies has come to an end.
In the past six months, the sentiment for shipping stocks has turned around. Hans Thrane Nielsen, portfolio manager at Storebrand, told TradeWinds: “In May, the two most popular things were large US tech companies and Norwegian shipping stocks.
“In the upcycle, when generalists discover shipping, the stocks perform very well. That is usually the end of a good cycle.”
The Oslo Bors Shipping Index has fallen 23% since the peak in June.
He said: “We have moved from very high pricing to recession pricing where one can buy most shipping companies [at a] low pricing of net asset value. The discount on net asset value has increased.”
Thrane Nielsen, who has worked for Storebrand for 26 years, manages a total of NOK 18bn ($1.6bn) in Norwegian stocks. He said the chemical tankers look “the most exciting segment”. The NAV discount of Stolt-Nielsen and Odfjell is around 50%, which is “unusually high”. Thrane Nielsen’s funds increased their holding in Stolt-Nielsen in October and November. But he has cut down exposure to crude and product tankers this year.
“For crude and product tankers the autumn has been very disappointing,” Thrane Nielsen said.
“The oil demand is weak, especially in the US and China. There has not been a seasonal upswing in rates in 2024. Many investors are disappointed. Earnings for tankers are good but not fantastic.
“Now you can buy Frontline at NAV discount. Shares have fallen so ship values should come down. When earnings fall values come down a bit later. The market is discounting a considerable fall in NAV,” he explained.
Thrane Nielsen’s funds have not held Frontline since early this year. “Now it looks more exciting. It is tempting. I want to see how weak the winter market will be. “If the winter market continues to be weak and the shares keep falling. One could maybe buy Frontline at a cheap price,” he said.
His biggest shipping holdings are Hafnia, Wallenius Wilhelmsen and Stolt-Nielsen. “In car carriers, there is also a big orderbook,” Thrane Nielsen said. “But Wallenius Wilhelmsen is building a comprehensive backlog towards 2028 and 2029, which can bridge some of the downturn.
“The car carrier segment has been fantastic. The rates are at an all-time high. The rates will fall significantly when the newbuildings are delivered. The segment must scrap some ships in 2027 and 2028 if the market should be good towards 2030,” he explained.
“We have kept the stock because it is so cheap and low priced. We rely on the management to do a good job and get good contracts.”
Thrane Nielsen also has a small position in Golden Ocean. He said: “The bulker stocks are very much affected by China. The 2025 estimates should come down a bit. But Norwegian dry bulk stocks are cheap. Golden Ocean and 2020 Bulkers are low-priced. But the stocks are dependent on China and more stimulus. We need more stimulus.”
This year has seen several large mergers and acquisitions on the Oslo Stock Exchange with the buyout of Gram Car Carriers and BW LPG’s takeover of Avance Gas’ VLGC fleet.
Thrane Nielsen said: “Cheap shipping companies will be bought. I don’t know whether there will be more M&A in 2025 than in 2023 and 2024 but if the price is right companies will be bought."
“Many Norwegian shipping companies are controlled by families. It makes it a bit more complex. But as with BW LPG and Avance, where the Sohmen family and Fredriksen made a deal, you will get good transactions,” he added.
As a result of his stock picking, Thrane Nielsen’s funds are currently a bit underweight on shipping. His Storebrand Norge A fund has risen on average 11.9% in the past five years while the index returned 9.9% per year.
After a muted year for shipping stocks, Thrane Nielsen has a neutral outlook for 2025. He pointed out that “there are large orderbooks especially in gas, container and to some degree in car carriers that the market must handle”.
