On Tuesday, BTIG initiated coverage on DHT Holdings (NYSE:), a tanker company, with a Buy rating and a price target of $16.00 per share. The firm’s analyst highlighted DHT Holdings’ position to benefit from a projected multi-year upcycle in the tanker market and its potential to offer an attractive dividend to investors.
The analyst pointed out that after a period of stabilization in the crude tanker market, with the Very Large Crude Carrier (VLCC) benchmark rate, also known as TD3, averaging around $37,000 since the start of 2023, there are expectations for a rise in activity. This anticipated increase is attributed to the resumption of OPEC crude exports from the Middle East and growing crude oil flows from the Atlantic region, including South America and the U.S.
DHT Holdings, which operates a fleet of VLCCs, is noted for having its ships fitted with scrubbers—a technology that cleans emissions from the ship’s engine, allowing the company to benefit from additional earnings. Over 60% of the active VLCC fleet is equipped with scrubbers, which have contributed an additional $6,000 to $10,000 per day to the rates, bringing the year-to-date average rate for scrubber-fitted VLCCs to approximately $45,000.
Looking forward, BTIG anticipates that the VLCC rates will climb further in 2025 and 2026 due to increased crude oil flows and a manageable supply of new ships entering the market, with the VLCC fleet expected to grow by only about 1% in 2025. The firm projects that scrubber-fitted VLCCs could average rates of approximately $55,000 to $60,000 in the next few years.
The analyst concluded by emphasizing DHT Holdings’ strong dividend potential, driven by the company’s policy of distributing 100% of its net income as dividends. With a current yield of around 9% and low leverage, approximately 20% loan to fleet value, DHT is considered well-positioned to pay out higher dividends as VLCC rates increase.
In other recent news, DHT Holdings, Inc. reported robust financial results for Q2 2024, with revenues of $103.7 million and a net income of $44.5 million. The company’s financial leverage stood at 18.6% and total liquidity was at $263 million. Looking forward to the third quarter, DHT Holdings has projected 552 time charter days at $37,700 and an anticipated 1,630 spot days at an average rate of $42,100.
Despite potential challenges in the Chinese crude oil market and shifts in Asia’s heavy trucking fuel usage, DHT Holdings remains optimistic about its strategic growth. The company is considering fleet expansion next year and is closely monitoring OPEC production levels. Also, it is optimistic about new trade routes evolving with the ramping up of TMX.
The newbuilding program is progressing with accelerated delivery schedules, promising increased revenue days. The company’s repositioning of drydock into the Atlantic basin is expected to be beneficial for trading with cargoes loaded from diverse regions like USGO, Brazil, and West Africa.
InvestingPro Insights
Recent data from InvestingPro reinforces BTIG’s positive outlook on DHT Holdings. The company’s P/E ratio of 11.64 suggests it may be undervalued relative to its earnings, aligning with BTIG’s bullish stance. DHT’s strong dividend profile is further confirmed by InvestingPro data, showing a significant dividend yield of 9.52% and a 17.39% dividend growth in the last twelve months. This supports BTIG’s emphasis on DHT’s attractive dividend potential.
InvestingPro Tips highlight that DHT “pays a significant dividend to shareholders” and has “maintained dividend payments for 17 consecutive years,” underscoring the company’s commitment to returning value to investors. Additionally, DHT “operates with a moderate level of debt,” which aligns with BTIG’s observation of the company’s low leverage.
For investors seeking a deeper understanding of DHT’s financial health and market position, InvestingPro offers 11 additional tips, providing a comprehensive analysis to inform investment decisions.
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