Ten-year old tankers will outperform their younger counterparts, according to McQuilling Services Industry’s Sharpe Ratio analysis on VLCC and Suezmax tankers.
McQuilling bases its argument on recent asset prices for the 10-YR old VLCC and Suezmax vessels, which have appreciated by 21.2% and 44.9%, respectively when measured by the percentage growth in the last twelve months.
“We believe the upward momentum initiated during the year will continue forward as the current firm earnings environment persists at a stable rate in 2015, retreating slightly in 2016 before re-firming through 2019,” the shipbroker said.
The analysis shows that despite the similar behavior of the asset prices for the 5-YR and 10-YR old vessels, there was a clear differentiation in velocity of price movements.
Hence, as determined, the older vessels outperformed their younger counterparts when prices were increasing, but also experienced more negative volatility in market downturns.
Speaking of the forecasts for 2015-2019, McQuilling concluded that tankers across all sectors were likely to rise amid a firmer earnings environment; however, the magnitude by which they rose would vary significantly.
In the clean tanker segment, the 10-YR old MR2 with a projected increase of 11% was the best expected performer; but, on the dirty side, the ship broker forecasts growth of at least 18% for the different 10-YR old tankers.
The 10-YR old dirty tanker class, on average, represented the best performing class of vessels, outpacing their clean counterparts as well as the 5-YR dirty and clean tanker classes.
“The results of our forecast indicated to us that there is a great deal of value in this older class of vessels, which was further confirmed in our investment analysis,” the shipbroker added.
McQuilling concluded that with an IRR (return on equity) of 44.9%, the 10-YR old VLCC represents the best investment option in today’s pricing environment according to the broker’s calculations.
“Not far behind is the 10-YR old Suezmax which may return a 40.8% IRR to investors. These results have proven to us that these ladies are getting more beautiful as they age,” McQuilling went on to say.