Credit Suisse Says 'Frontline 2.0' Is Here, Upgrades Stock To Neutral

• Despite significant volatility over the past month, shares of Frontline Ltd. FRO are up less than 1 percent since October 26.
• Credit Suisse’s Gregory Lewis upgraded the rating on the company from Underperform to Neutral, while raising the price target from $2 to $4.
• The merger with Frontline 2012 should strengthen FRO's position and dividends may be announced in the near term, Lewis said.

The merger between Frontline and Frontline 2012 is scheduled to be voted on November 30t. Analyst Gregory Lewis expects the merger to be approved, and believes that this would strengthen Frontline’s position and “open the door for dividends.”

The EPS estimate for 2015 has been raised from $0.45 to $0.55, to reflect updated day rate assumptions and costs. Lewis expects the company to deliver a robust performance in Q4, since it has fixed 80 percent of its VLCCs at around $69k per day and 88 percent of its Suezmaxes at about $43k per day.

Lewis wrote, “FRO plans to purchase 2 Suezmax newbuilds from Golden Ocean Group (3rd party affiliate) delivering in 1Q17 for ~$55M/each. This will boost FRO's (post merger) Suezmax fleet to 16 (includes 8 newbuilds).”

Frontline has been high grading the fleet, selling 3 Suezmaxes since September (owned by SFL). The analyst added, however, that SFL still owns 12 VLCCs and 2 Suezmaxes which are charted to Frontline and have 50/50 profit splits.

After the merger, Frontline will own or charter-in a diversified fleet of crude and product tankers on the water, including 20 VLCCs, 14 Suezmax, 6 MRs, and 4 LR2s. “Additionally, the company has newbuild capex of roughly $1.5B on 14 crude tankers (6 VLCCs and 8 Suezmaxes) and 14 LR2s scheduled for delivery through 2017,” Lewis added.