DHT through its subsidiaries, operates as an independent crude oil tanker company. As of May 2, 2012, the company operated a fleet of 11 double-hull crude oil tankers, including six very large crude carriers, two Suezmax tankers, and three Aframax tankers.
During its latest earnings call (July 24, 2012), DHT Holdings, Inc. reported second quarter results with profitable operations and strengthened balance sheet. Click here for report.
During the earning call CEO Svein Moxnes Harfjeld noted,
Our EBITDA came in at $11 million with net income of $2.7 million and earnings per share of $0.02. The earnings per share are calculated based on an average share count during the quarter of about $140 million and before the reverse stock split on a fully converted basis. Adjusted for the reverse stock split, the earnings per share would have been $0.23.
He stated that DHT would continue to pay a dividend. DHT ended up paying a dividend of $0.24 per common share and $3.40 per preferred share for the recent quarter. There is no guarantee of a continued dividend and DHT has lowered as well as stopped its dividend in the past. However, I believe with the current cash on hand DHT will maintain the dividend and ride out the slow period.
CEO Harfield also stated,
During the quarter, we have three VLCCs in the TI Pool, two for the full quarter and one from May. Its vessels generated average time charter-equivalent earnings of $25,000 per day. The remainder of the fleet was either on time charters or on long-term variable charters during the quarter. We commenced an equity offering in the first quarter that was backstopped by Anchorage Capital. The offering and the concurrent private placement closed on May 2, generating net proceeds of approximately $76.2 million.
DHT demonstrated a habit of equity offerings in the past which diluted share value. The dilution of share value was probably a significant factor leading to the reverse stock split.
Trygve Preben Munthe - (President DHT) during the same earnings call acknowledged the tough times and still tougher road ahead. Munthe continued by saying,
As you've have heard us say numerous times, we have no scheduled installments until the first quarter of '15 and no debt maturities until 2016 and '17. Further, we enjoy extraordinarily low interest rates on a large portion of our loans. As a matter fact, our current weighted average interest cost is only 3.16%, and that's all in. This comes out to about $6.9 million per year or about $2,100 per day per shift. Importantly, once our last interest rate swaps comes to an end in January next year, the interest rate drops to 1.6% all in, and the annual interest cost to $3.5 million, which equates to a meager $1,100 per day per shift.
With $70 million in cash on the balance sheet, DHT has reasonable flexibility to remain in compliance with loan facilities going forward. It has 59% charter coverage for the second half of this year and for 2013, the charter coverage at this writing is 29% of total tanker days. Concerning DHT this means it only needs some $6,000 a day or thereabout on the spot ships to generate cash after OpEx, CapEx, G&A and interest for 2013. This factor should allow the dividend to continue. In addition, I am still optimistic due to some fundamental factors listed below:
1. It has one of the lowest cash break-even levels in the industry.
2. Contract coverage. If you take factors one and two combined it means DHT should be able to generate positive cash from operations.
3. Due to recent factors to include the reverse stock split, its reduction in debt and the lower finance charges. DHT actually has a healthy balance sheet.
Naysayers will argue the factors leading to the devaluation of the stock and the reverse stock split. You must consider the main purpose of the split was to keep DHT from being delisted. An important note is the physiological factors of having a stock with such a low previous price. This was probably a factor as to why DHT went for a 1:12 ratio split rather than a lower ratio. During the earnings call, DHT never addressed how it came to a 1:12 reverse split even when directly asked. The result equated to 15.3 million shares, assuming all preferred shares are changed to common. Holders of the preferred stock have a mandatory conversion on June 30, 2013.
The increase in DHT share price did have an effect on institutional and mutual fund ownership, which is up in the latest quarter.
Institutional Share Purchases +2.2M
Institutional Shares Sold 646.2K
Net Institutional Shares Purchased +1.5M
Change in Institutional Ownership +53.93%
Mutual Fund Share Purchases +30.1K
Mutual Fund Shares Sold 12.5K
Net Mutual Fund Shares Purchased +17.6K
Change in Mutual Fund Ownership 9.53%
Compared to its competitors listed below and despite a recent downturn in the stock price I believe DHT is better choice in the long term.
Knightsbridge Tankers Limited (VLCCF) with a 6.62 stock price PE at 7.9. They also have a nice 10% dividend rate. However, the company lost $0.13 per share, well below Street estimates of $0.29 per share, largely due to a weak dry bulk market and the unexpected termination of their Golden Zhejiang time charter. It also cut its quarterly dividend to $0.175 per share, a 50% decrease from the prior year as it struggles with cash flow constraints and heavy spot market exposure.
Overseas Shipholding Group (OSG) $6.74 stock price. Overseas Shipholding Group last posted its quarterly earnings results on Wednesday, August 1st. The company reported ($1.52) earnings per share (EPS) for the quarter, missing the consensus estimate of ($1.39) by $0.13. The company's revenue for the quarter was up 7.3% on a year-over-year basis. In February 2012, the company suspended its dividend. The company currently struggles with trying to increase liquidity, and bridging a $100 million gap between amounts due on a credit facility versus the amount available on a new credit facility. As of Sept. 14, 24.8% of outstanding Overseas Shipholding Group shares were held short.
Nordic American Tankers' (NYSE:NAT) $10.30 stock price. Nordic American Tankers Limited is an international tanker company. As of December 31, 2011, the company owned 20 Suezmax tankers. Nordic announced that it would be acquiring the remaining interest in Orion Tanker Pool ("Orion"). Annual revenue fell from $126.416 million in 2010 to $94.787 million in 2011, and net loss came in at -$809 million in 2010 and -$72.298 million in 2011. Nordic American Tankers reports cash of $104.71 million but over twice that amount in debt at $205 million. The operating cash is a negative -$12.79 million. As of Sept. 14, 11.5% of outstanding Nordic American Tankers shares were held short
Claymore / Delta Global Shipping ETF (SEA) This ETF is one of the options available to retail investors looking for a one-stop shop for shipping stocks.
Take a long-term approach on this investment if you can stomach choppy waters.
Disclosure: I am long DHT.