STNG - Scorpio Tankers: 2024 Is On Pace To Be Another Transformational Year

2024-04-10 06:11:46 ET

Summary

• Scorpio Tankers is highly profitable due to strong vessel day rates.
• The refined product shipping industry will remain supply constrained for the next three to four years.
• Scorpio Tankers will achieve multiple expansion as it achieves debt targets and can allocate over $600 million per year to shareholder returns.
• Scorpio should realize over 30% total returns as this multiple expansion is realized.

Thesis

Scorpio Tankers ( STNG ) is a shipper of refined products such as gasoline, jet fuel, kerosene, and naphtha. Multiple market disruptions such as draughts in the Panama Canal, attacks in the Red Sea, and Russian sanctions, have caused global realignment of these trade flows, which in turn, has increased the international shipping demand for these products. Additionally, the world has become more polarized in terms of who deems refinery business acceptable in their country and who does not.

This polarization and new interferences are driving up ton-miles in an industry that is supply constrained. This is a result of underinvestment as well as limitations in shipyards to accommodate newbuilds. As polarization continues to build, spare excess capacity is consumed, while driving up both utilization and charter rates for Scorpio’s vessels....

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