DHT Positioned To Take Advantage Of Tanker Recovery

Ocean shipping stocks have been down for so long that it's heartening to see a positive trend. Interest continues to build in public crude tanker owners, including DHT Holdings DHT, with shares being bid up by investors in anticipation of higher rates to come.

DHT reported net income of $17.7 million for the first quarter of 2019, up from a loss of $9.2 million in the same period last year. Adjusted earnings per share of $0.16 in the most recent quarter more than doubled the analyst consensus forecast of $0.07 per share.

"We believe we are very well-positioned for the coming upcycle," explained DHT co-chief executive officer Trygve Munthe on the conference call for analysts held on May 9.

Putting the future potential in context, he said, "The rates in the first quarter were acceptable rates, but not great rates. They were well below historical averages. Every $10,000 per day in rate increases adds $90 million in cash per year. If, as some analysts forecast and as we saw in 2015, we see rates in the mid-$60,000s per day next year, our earnings could be not too far off from $2.50 per share. Those are big numbers."

DHT specializes in the very large crude carrier (VLCC) segment – tankers with capacities of around 300,000 deadweight tons (DWT). It owns 27 VLCCs with a total capacity of 8.36 million DWT and has primarily grown through fleet takeovers – the acquisition of the BW Group's VLCC fleet in 2017, and the purchase of Samco Shipholding's VLCC fleet in 2014.

During the first quarter, 83.5 percent of the company's revenue days were in the spot employment market, and 16.5 percent in the time-charter market. Daily rates are reported on a ‘time charter equivalent' or TCE basis, which translates spot business sold in dollars per ton of cargo into a fleetwide average measured in dollars per day under the same terms as time charters.

Its VLCCs in the spot market earned a TCE of $35,800 per day, up 77 percent year-on-year. Its vessels on time charter earned $33,900 per day, up 36 percent. The fleetwide average TCE was $35,500 per day, up 66 percent compared to the same period last year.

DHT has booked 61 percent of its available spot days during the seasonally weak second quarter at an average rate of $29,800 per day.

DHT's share price has increased by almost 40 percent since the beginning of 2019. In general, tanker stocks are rising as investors bet that demand will increase at the same time overcapacity will diminish as newbuilding deliveries decline.

"There have been no new VLCCs ordered for the past three months and we don't anticipate any big ordering spree," said Munthe.

He attributes the lack of ordering to three factors – first, private equity is not ordering because its "fingers were burnt" in the previous cycle; second, some private shipowners do not have enough cash to invest because of the rate weakness in the past few years; and third, for those that do have money to invest in newbuildings, there's uncertainty about the right design.

"Quite a few people are sitting on the fence because they don't want to be the first mover with the new design or the last mover on the old design," said Munthe, who added, "That is very good news for the next upcycle."

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