Frontline Anticipates Seasonal Upturn in Tanker Market

Frontline plc (NYSE: FRO), a major player in the tanker industry, has reported its Q2 2024 earnings of $0.62 per share, matching the previous quarter’s results but slightly below analyst expectations.

The company, which recently expanded its fleet with 24 VLCCs acquired from Euronav, saw steady performance across its vessel categories.

In Q2, Frontline’s 39 VLCCs earned $49.6K per day on a timecharter equivalent (TCE) basis, while its 22 Suezmaxes and 19 Aframax-LR2s earned $45.6K and $53.1K per day, respectively. These figures were largely consistent with Q1 earnings.

The company’s stock price, currently around $24 per share, reflects investor caution amid seasonal softening in tanker hires. Q3 contracting rates are showing a slight decline across all vessel categories compared to Q1 and Q2.

Despite the current market conditions, Frontline remains optimistic about the upcoming winter season. CEO Lars Barstad stated, “Historically, refinery utilization increases from here, as the world begins to prepare for winter and volatility in the tanker markets resumes.”

The company also highlighted shifting market dynamics, including the growth of the “dark fleet” or “shadow fleet” since early 2022, which is impacting the conventional tanker market. Frontline noted that OPEC+ is expected to increase supply from October, coinciding with the U.S. Energy Information Administration’s forecast of climbing overall oil demand.

In a positive development for shareholders, Frontline declared a Q2 2024 dividend of $0.62 per share, representing a near-100% payout ratio of adjusted earnings for the second consecutive quarter.

Analyst Jon Chappell from Evercore ISI suggested that Frontline may maintain this aggressive dividend policy for the foreseeable future following a program of selling older vessels at high prices and refinancing outstanding debt. “We believe FRO will be more aggressive with its dividend payout program in the current tanker market upturn, with the recent 100% policy (though “unofficial”) the most likely outcome for the foreseeable future,” he said. 

Frontline’s Q2 EBITDA came in at $340 million, significantly exceeding analyst expectations of around $300 million, indicating strong underlying performance.

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