Gener8 Maritime: Bunker Savings Potential Buoys Wall Street

Jefferies say Gener8's eco-VLCCs will provide big savings.

US-based crude oil shipper Gener8 Maritime, Inc. [NYSE:GNRT] (Gener8) this week has received a favourable round of reviews from Wall Street, thanks in part to analyst sentiment over potential bunker cost savings from the tanker owner's fuel efficient newbuildings.

Jefferies, who on Monday initiated coverage of Gener8 with a Buy rating, set a target price of $20.00 following the completion of June's $14.00 per share IPO.

"We are initiating coverage of GNRT shares with a Buy rating and a 12-month PT of $20 based on the attractive outlook for the crude oil shipping market as well as Gener8's spot market focus, which provides significant operating leverage, and newbuilding program, which provides significant built-in growth," commented Jefferies analyst Doug Mavrinac, who also noted Jefferies served as joint bookrunner on Gener8's IPO.

Bunker Savings

Gener8 says it has 21 "eco" VLCC newbuildings "equipped with advanced, fuel-saving technology, that are being constructed at highly reputable shipyards," which are expected to hit the water between August 2015 through February 2017.

Mavrinac says that based on bunker prices at $350 per metric tonne (pmt) the vessels will save around $6,300 per day, which would mean bunker cost savings of $48.2 million per year across all 21 eco-VLCCs.

When bunker prices rise, Mavrinac says the savings will be magnified, with $615 pmt bunkers translating to per vessel daily savings of around $10,800, or $83 million for all 21 VLCCs per year.

The World Bank Wednesday raised its latest predictions for average crude prices to $57 per barrel in 2015 and $61 per barrel in 2016, which would suggest average IFO380 bunker prices in the $300-$322 per metric tonne (pmt) and $322-$344 pmt range for 2015 and 2016 respectively.

Meanwhile analysts at UBS this week were reported to have chosen GNRT as a "Top Pick" with an upside potential approaching 50 percent, while Citigroup analyst Christian Wetherbee also agreed there was plenty of upside for the stock "as the company executes on its fully financed pipeline of newbuilding eco-VLCCs."

Gener8 says it will release its financial results for the second quarter ended June 30, 2015 after the market close on August 4, 2015.

Earlier this week Ship & Bunker reported that Gener8 Maritime headed the list of biggest spenders on second hand tonnage so far in 2015.