Morgan Stanley: DHT Holdings Is A Play On An Oil Tanker Recovery

Oil tanker company DHT Holdings Inc DHT is trading at a discount to its net asset value, and investors may want to consider taking advantage of the "attractive entry point," according to Morgan Stanley.

The Analyst

Morgan Stanley's Fotis Giannakoulis upgraded DHT Holdings' stock rating from Equal-weight to Overweight with an unchanged $5 price target.

The Thesis

DHT Holdings boasts a "highly attractive" very large crude carrier fleet, Giannakoulis said in the upgrade note. (See the analyst's track record here.) 

DHT's balance sheet gives it enough flexibility to satisfy its debt load of $5.50 per share without the risk of dilution, the analyst said. As the market continues to move in the direction of a recovery, the stock could re-rate significantly higher and trade in-line with the total value of its assets, which is $5 per share, according to Morgan Stanley. 

DHT could be considered one of the "strongest" companies in the sector in terms of its ability to navigate any oil downturn, Giannakoulis said. The company is backed by $130 million of liquidity, which represents around 26 percent of its total market cap, and a "modest" leverage, with net debt at 60 percent of fleet value.

Investors can expect the oil tanker market to recover due to the following factors, Giannakoulis said:

• Higher OPEC output.
• A ramp in U.S. exports.
• Oil is trading in contango, which should increase trading activity.
• Higher scrapping due to new IMO regulations.

Price Action

Shares of DHT Holdings were up 3.88 percent at $3.75 at the close Monday. 

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