Rune Rudberg

The Short Case On Frontline

As seen lately FRO have made some gaines from the low of 189 NOK or 30,1 USD. This is a result of the expected thightening of the balance in the marked and expected.

However, the list of available tonnage is expected to grow throughout the spring, as it always does and the rates are gonna decline. Frontline has a breakeven rate of 29.800 USD/VLCC , which is among the highest in the industry and also one of the highest debt/equity ratios so the case is highly geared both operationally and financialy.

Since the fllet growth is 10%/y the next 3 years and the demand growth is stipulated to somewhere around 4% the direction of the rates are given, but one can expect spikes in the winterseason.

This will significantly reduce EPS and thereby the dividend payout capacity and some actors in the business are claiming that Fronline won`t make a profit at all in 2009.

Therefor I suggest that the recent spike in the stock pirce is a great opportuninty to place a new short position and I would say that the range between 210-220 NOK is the place to do so! In mid May I expect Frontlines stovk price to be somewhere inbetween 130- 150 NOK, which gives a return of about 25- 30%, depending on the next dividen (which I expect to be about 1- 1,5 USD/share)

The Short Case On Frontline

Patrick, if you decide to sit short over a dividend is a zero sum game, since a stock price will decline with the same amount as the dividend when going ex. div.....

Another common misunderstanding is that Frontlines fleets break even rates are among the lowest in the business and that the companies fleet is among the most modern.

Firstly, the companys VLCCs currently have a break even rate at almost 30000 usd/day and further more a profit split agreement, which entitles Ship Finance to 20% of every usd frontline earns above the break even rates...

Frontlines fleet is also getting old, in fact among the older in the industry, which tells us that we should expect that most of the ships would spend more time dry docked as they did i Q3...

Finaly the current rates, in a quarter which was expected to be strong, are getting pretty close to break even rates, at least on the AG- EAST route. The rates are also expected to decline further before they MIGHT strengthen in January. The list of available tonnage tells us that almost 80 VLCCs are expected to reach the AG the next 30 days and everything over 60 VLCCs tells us that the rates should decline further...

The Short Case On Frontline

If the future rates give a somewhat right prediction of next years market, the recent fall suggest a downward revision of next years estimates.

Since a 1000 USD/Day decline in the rates lowers the EPS with somewhere around 0,2 USD, the recent fall of almost 6000 USD/day suggests a EPS just a little over 3 USD next year and below 2,5 USD for 2008 and 2009.

This makes the picure even clearer in my opinion: Frontline is one of the most obvious short candidate within the whole shipping segment

The Short Case On Frontline

Hi david.

Frontline is one of the worlds largest independent provider of crude oil shipping...

Its actually quite hard to determine the effect of a sudden tenseness in international relations, since it would depend both on the effect of tonnagemiles demanded and the risk premium charterers would be willing to pay for securing future shipments of crude.

A bullish scenario might take place if Venezuela directs the countrys export of crude towards China instead of the US, since that would increase the demand for tonnagemiles.

However, I find the direction of the marked given, due to the large surplus of available tonnage the years to come, but watch out for the expected spikes(seasonal among others) and the more unexpected that might occure if for example geopolitical tensions or hurricanes leads to a sudden shift in the demand curve