Euronav's Full-Year Dividend Intact, Citi Remains Constructive On Tanker Fundamentals

Citi maintained its Buy rating on Euronav NV Ordinary Shares (NYSE: EURN) and kept its $0.85 dividend expectations for 2016 unchanged despite the company's board appears to be conservative in its first half dividend.

Euronav's board approved a $0.55 dividend tied to a first half net income base of $140 million, or a 63 percent payout versus the targeted 80 percent payout ratio expected on full-year net income.

Citi noted that the company had earlier communicated the potential for a more conservative first half payment followed by a larger payment in the second half to hit the 80 percent payout target.

The strategy enables Euronav to preserve its near-term liquidity and finance the acquisition of two VLCC resale vessels from HHI. The analyst believes the company is well positioned to grow in a tanker market recovery.

"Longer-term, a still controlled 2017 and 2018 tanker order book and expectations for continued growth in the global crude trade keep us constructive on tanker market fundamentals," analyst Christian Wetherbee wrote in a note.

Wetherbee raised his EPS estimates to $1.18 from $1.15 for 2016 and $0.80 from $0.67 for 2017, reflecting the addition of the two HHI vessels in the fourth quarter.

"We believe that tanker rates are just past an inflection point in their recovery, and that spot rates will recover at a faster rate than charter rates, due to higher turnover on shorter hires in a rising rate market, allowing for quicker opportunities to reset for-hire rates higher as market fundamentals continue to tighten," Wetherbee noted.

"As such, with greater than 80% spot market exposure, Euronav presents an opportunity for near-direct investor participation in the tanker market recovery," the analyst added.

Shares of Euronav closed Thursday at $8.58. Wetherbee has a price target of $11, implying a potential upside of 28.2 percent.