Oversupply And Decarbonization Will Erode Margins Despite Enduring Fleet Efficiency

Key Takeaways

• Structural shifts toward decarbonization and alternative fuels threaten long-term demand and earnings for d'Amico, despite benefits from its modern fleet.
  
• Regulatory and market pressures could increase financing costs and bring risks of fleet oversupply, challenging both profitability and asset values.
  
• Volatile earnings, declining asset values, market oversupply, weakening demand, and rising regulatory costs present multiple structural and financial headwinds to future profitability and margins.

Catalysts

Through its subsidiaries, operates as a marine transportation company worldwide.

• While d'Amico's modern, fuel-efficient fleet and growing proportion of eco-design vessels position it favorably amid rising global regulatory scrutiny, the accelerating adoption of electric vehicles and heightened policy pressure for decarbonization could structurally reduce oil product demand and long-term cargo volumes, ultimately limiting sustained revenue growth.
  
• Despite robust emerging market energy consumption and industrialization, the rapid build-out of alternative fuels and localized refining capacity in developing regions may gradually erode ton-mile demand for global product tankers, dampening utilization rates and placing pressure on future EBITDA margins.
  
• While recent time charter coverage provides near-term earnings visibility, the persistent reduction in OECD refining capacity and a plateau in global product demand raise concerns over the durability of high charter rates, introducing downside risk to both revenue and net income beyond the next several years.
  
• Although prudent debt management has strengthened d'Amico's balance sheet and reduced financing costs, greater investor and regulatory focus on ESG factors could make future refinancing more expensive for companies exposed to fossil fuels, negatively affecting capital allocation flexibility and net margins in the long term.
  
• While limited new tanker orders and an aging global fleet appear supportive for supply-side tightness and future earnings, a potential surge in speculative newbuild activity-if replacement cycles are triggered by forthcoming environmental mandates-may result in medium-term oversupply and downward pressure on vessel values, hurting both operating profitability and asset NAV.

d'Amico International Shipping Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on d'Amico International Shipping compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming d'Amico International Shipping's revenue will decrease by 12.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 34.0% today to 12.7% in 3 years time.
• The bearish analysts expect earnings to reach $38.3 million (and earnings per share of $0.34) by about July 2028, down from $151.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 15.4x on those 2028 earnings, up from 3.2x today. This future PE is lower than the current PE for the GB Oil and Gas industry at 17.2x.
• Analysts expect the number of shares outstanding to decline by 1.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.94%, as per the Simply Wall St company report.

d'Amico International Shipping Future Earnings Per Share Growth

Risks

• The company's Q1 2025 net profit and average daily rates were substantially lower than those achieved in Q1 2024, highlighting the volatility in the product tanker market and raising the risk of declining revenue and earnings if rates and profits do not rebound sustainably.
  
• Asset values for tankers, especially older vessels, continued to decline in Q2 despite still-high charter rates relative to historical averages, suggesting a risk of further downside in fleet valuation and thus a potential hit to d'Amico's net asset value and book equity.
  
• Accelerating deliveries of newbuild tankers, particularly with fleet growth projected to reach 2.7% in 2025 and 3.8% in 2026 for MR and LR1 segments, could create long-term oversupply pressures in the sector, putting downward pressure on charter rates and negatively impacting d'Amico's revenue and profit margins.
  
• Structural trends such as declines in refining capacity and oil demand in OECD countries-including Europe and the United States-pose a long-term risk to seaborne product volumes, heightening exposure to shrinking revenue streams from these mature markets over the coming years.
  
• Increasing regulatory burdens (such as stricter IMO and regional emissions requirements) and the possibility that poorly maintained older vessels will face accelerated scrapping may require higher capital expenditures for fleet renewal and retrofits, potentially eroding net margins and free cash flow over the long term.

Valuation

• The assumed bearish price target for d'Amico International Shipping is €3.84, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of d'Amico International Shipping's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €5.71, and the most bearish reporting a price target of just €3.84.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $300.8 million, earnings will come to $38.3 million, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of €3.6, the bearish analyst price target of €3.84 is 6.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.