Re: Question about FRO (Kartsonas) Pt 1
Picking on hapless Kartsonas -- too easy. Mark of a true WWII fighter ace, picking off the stragglers from the formation.
Alternatively, if you were to force rank all of the analysts and pundits by bullish/bearish stance or forecast accuracy, then the outliers at either end would be relatively easy to pick off, not just Kartsonas. Do you remember this little gem from Fyhr’s early-June 2005 research report?
<As a result, we reiterate our Buy rating and our 12-month price target of $65 per share based on Frontline shares trading at 7-8 times 2005E EPS, 5-6 times 2005E CFPS, and 6-7 times 2005E EV/EBITDA.>
Fifteen months later, I don’t recall seeing $9/share earnings or anything remotely resembling a $65 print.
No, the pollyanna analysts on the other side of the normal curve have been just as wrong at times, and as potentially damaging for <potential investors who can't think for themselves or do their own research>. Meanwhile, relying on owners who are notorious for talking their own book, to develop your own tanker market view has its obvious risks. You have probably conveniently forgotten Spieler’s breathless projection for 7% tonnage demand growth in 2005, at about the same time last summer, when a burst of AG/West chartering activity whipped up rates. Of course, tonne-mile demand growth came in at 2.4% for crude during the year (3.9% for products), so Oscar and the FRO team were not too far off the mark. We view their $200k/day autumn “prediction” as another summer-time foray at talking their own book, and with the same level of skepticism. Many of you may actually believe that VLCC rates will hit $200k/day this autumn, when the weakening market fundamentals are far different than the extraordinary set of events in 2004 that created that historic spike.
Moreover, FRO’s commercial configuration is significantly different from the autumn of 2004, both in terms of spot exposure and ownership of SFL. As a result, the recent and prospective rate environment will not produce the earnings of which many of you are dreaming. For example, the recent rate performance and today’s FFA curve suggest composite VL market earnings (in lagged, voyage revenue recognition terms) of $77.9k/day in 3Q06 and $92.7k/day in 4Q06, while for Sx, this would be $56.6k/day and $72.8k/day, respectively. In turn, this would imply ongoing earnings (excluding one-time gains) of $1.00-1.05/share in 3Q06 and $1.70-75/share in 4Q06, for ongoing 2006 earnings of $6.20-6.30/share. Add in the $0.13/share gain from the GMR share sale, and you would see reported earnings of around $1.15/share in 3Q06.
Sadly, I know what many of you are thinking. If VL market earnings were $46k/day in 2Q06 and FRO earned $0.79/share in ongoing earnings, then $78k/day VL earnings and a $18k/day jump in Sx rates must mean a massive jump in earnings for 3Q06 on 63 non-ITC vessels. Well, in addition to overlooking the SFL/”own fleet” mix, the number of time charters that reduce FRO spot exposure and the high level of drydocking for 3Q06; you people always, always forget about the accounting impact of SFL profit sharing accrual.