Key Analyst Sees Attractive Entry Into Euronav

Wells Fargo initiated Euronav with an Outperform rating. The reasoning behind this rating was Euronav’s scale/liquidity, significant leverage to tight tanker fundamentals and its pass-through dividend model, all of which combine to create a positive risk/reward profile for the stock. The firm thinks Euronav represents the highest quality avenue for tanker exposure considering its size, its clean/transparent structure, solid management and a strong balance sheet, which Wells Fargo believes should ultimately support a valuation premium relative to its net asset value (NAV) and its peer group.

Along those lines, the investment bank believes recent volatility has created an attractive entry point into the stock, with Euronav trading at a 9% discount to the NAV estimate of $13.31, and a 14% discount to its peers. Wells Fargo’s valuation range is $15 to $17 per share, and it has earnings per share (EPS) estimates for 2015 and 2016 of $2.10 and $1.56, respectively.

Despite significant capital markets turmoil, 2015 is shaping up to be a strong tanker market. Tailwinds that should support a solid tanker outlook well into 2016 include:

• Core OPEC production remains stable [up 900KB/d (thousand barrels/day)], with Iran likely to add 500KB/d by the first half of 2016 – driving robust tanker volumes. Russian and Brazilian productions are up 80KB/d and 120KB/d, adding to trade volume/ton-mile growth.
• As inventories ramp and volatility surge, we’re seeing significant tonnage effectively providing short-term storage, which could ramp later in the second half.
• Remains manageable at 2.7% in 2015 estimates and 6.5% in 2016 estimates — supporting relatively strong utilization levels.
• This company has carried a -0.72 correlation with Crude over the past 12 months, with the group acting as a solid hedge against commodity prices — the firm thinks that will continue.

Shares of Euronav were up 4.8% at $11.41 on Tuesday. The stock has a consensus analyst price target of $19.17 and a 52-week trading range of $10.34 to $16.64.

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