Analysts Say Norwegian Offshore And Shipping Stocks Are Now A Good Buy

Norwegian offshore oil and shipping stocks are a good buy for investors who have time to wait to realize profits, according to analysts. Four out of six analysts said the sectors were especially attractive for share price growth, but warned that third-quarter profits were unlikely to be pleasing. "There is already some focus on weak earnings for offshore companies and I expect the (stock) market to continue focusing on that," said one analyst. "I don't feel the third quarter is very interesting. It is based on an oil market, which is hopefully behind us," he said, adding that he expects activity in the oil sector to pick up some time in the first half 2000. Oil companies were quick to slash exploration and development budgets last year when oil prices crashed to historic lows under $10 per barrel. Since then oil prices have more than doubled but cautious oil firms have been slow to dust off shelved projects. Brokerages recommending the oil and offshore sector said they were basing their views on the probability that the Organization of Oil Producing Countries (OPEC) would succeed in holding oil prices at a relatively high level, at least around $20 per barrel. OPEC and some non-OPEC countries including Norway have curbed production to try and mop up a glut in crude supplies, which had driven prices down. OPEC has agreed to keep its production curbs until March, while Norway's current 200,000 barrel per day cut is due to expire at year-end. The government has yet to decide whether it will roll over the cut. "If there is no break in the OPEC cooperation then there will be a physical lack of oil and one will have to turn up the taps," said analyst Morten Sundstoe at Fondspartner. "We think that will happen well before March and that's why we are very positive to the oil sector," he said. "We have expectations that the offshore sector will begin to improve in 2000, but it might not be until 2001 that we really see any improvement in earnings at offshore companies," said Ivar Larsen, chief analyst at the Oslo subsidiary of Sweden's H&Q Norden. Larsen predicted poor results for offshore stocks in both the third and four quarters 1999. A Recovery In Sight For Shipping The analyst panel also saw a recovery in shipping, which has been hard hit by the curb to world oil supplies. "It's not often that you can see a real boom in the shipping market. But it won't take much to see that a small increase in demand, especially in tankers, can have a dramatic impact in rate levels," said Fondspartner's Sundstoe. Sundstoe said the shipping sector was the most undervalued on the Oslo bourse, although he cautioned a selective strategy. "As far as tankers are concerned it is the companies focusing on the new, modern vessels that are the most profitable," he said. H&Q Norden agreed that shipping stocks looked underpriced and recommended a "buy" on the sector. Larsen said, however, that growth would come at different times for different sectors of the market. "We see some differences in development. In some areas, we expect an improvement in the third quarter. But when it comes to typical tanker companies or commodity shipping, we are not so optimistic for the third quarter," Larsen said. "But overall we see better earnings in 2000 than in 1999 for the entire (shipping) sector and the same for 2001."