DHT Holdings: Well-Positioned For A Counter-Cyclical Strategy

Summary

• DHT has a solid track record of managing the shipping cycles with success from 2013.
• The company is well-positioned to take advantage of any future growth opportunity.
• The short-term tanker market outlook supports the company’s counter-cyclical strategy.

Key Takeaway

DHT Holdings Inc. (NYSE:DHT) has a solid track record of reading the shipping cycles successfully. As a matter of fact, the management does it from 2013 up until now consistently.

During the recent period of strong earnings and asset values appreciation, management earmarks the excess cash from operations for two strategic pillars:

1. Enhancing the shareholder returns by making hefty dividend payments of $134 million in relation to H1 2020.

2. Deleveraging the company's balance sheet by paying $117 million of debt on top of the scheduled debt repayments.

Also, management executed on a third pillar concerning DHT's chartering strategy:

3. Securing 10 vessels to long-term time charters. In that way, DHT managed to lower business cash break-even rates considerably.

As a result, DHT is well-positioned to explore growth opportunities in the present leg of the crude tanker market.

Current newbuilding and second-hand markets for VLCCs are not that far from the 2017 lows when DHT expanded its fleet by acquiring 13 VLCCs.

In light of the recent decline in asset values, the target price for the company's equity currency changes to $6/share. Still, the investing rating remains BUY (the same as in May 2020).

Source: Seeking Alpha - As of September 25, 2020

Last but not least, for all the underpinning assumptions of this research note, I invite you to download the DHT dashboard. The file covers DHT's financial summary, financial statements projection, the assumptions underpinning the analysis and the company's updated valuation.

DHT is positioned to grow

In H1 2020, the tanker market was quite strong leading the demand for dirty tankers to all-time highs. VLCCs were fixing at a range of $100,000/day - $200,000/day. Management capitalized on the recent crude tanker market by building a strong valuation base for the future. It enhanced the shareholder returns, strengthened the company's balance sheet, and lowered the

Analyst’s Disclosure: I am/we are long DHT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

My Buy rating and target price are based on DHT shares trading at 90% of estimated NAV. The company analysis is based on financial modeling. DHT Dashboard is an integral part of the analysis. Additional Disclosure: This article discusses risky investments including volatile and thinly traded shipping investments. Not knowing your goals, risk appetite and other relevant factors I cannot recommend any specific investment.