DHT Holdings, Inc.

DHT Details

DHT Holdings, Inc. (NYSE: DHT) is an independent crude oil tanker company. As of March 31, 2021, DHT’s fleet size contains 28 Very Large Crude Carrier (VLCC), out of which 14 vessels operate on time-charters and another 14 vessels operate on voyage charter, with the combined capacity of 8,660,835 deadweight tons (dwt). The company generates revenue from two types of contracts, namely 1) Time Charter contracts 2) Voyage Charter contracts (operating in the spot market). As of June 10, 2021, the company’s market capitalization stood at USD 1.09 billion.

Fleet transformation to augment competence: On April 02, 2021, the company took the delivery of DHT Osprey, the second of the two VLCCs acquired in January 2021. The first vessel, DHT Harrier, was delivered on February 18, 2021. The possession of the two VLCCs is expected to be accretive to the company’s growth. Also, DHT announced the sale of its three oldest vessels in Q2FY21. As a result, the company expects to book a profit of around USD 15 million for these three transactions in Q2FY21. In addition, this transaction would decrease the average fleet age from 9.4 years to 8.2 years, and improve the energy and operational efficiency of the fleet.

Q1FY21 Results: The company reported a slight decline of 4.40% in shipping revenues to USD 86.98 million in Q1FY21 (ending March 31, 2021) compared to USD 90.99 million in Q4FY20 (ending December 31, 2020). The Time Charter contract segment contributed 65.31%, while the Voyage Charter contract segment contributed 34.69% of the shipping revenues in Q1FY21. In addition, the company reported a sharp increase of 52.23% in net income to USD 11.61 million in Q1FY21 compared to USD 7.62 million in Q4FY20.

Q1FY21 Cash Flow Highlights (Source: Earnings Presentation, May 05, 2021)

Key Risks: The company's top five customers accounted for 41%, 58%, and 46% of the total revenues in FY20, FY19, and FY18, respectively. Excessive dependence on certain customers for business could hurt the company’s financial standing.

Outlook: For Q2FY21, 75% of the available VLCC days have been booked at an average shipping rate of USD 21,300 /day on a discharge-to-discharge basis. The company is anticipating utilizing the opportunity of current weak freight market conditions by carrying dry dockings, installation of scrubbers, and ballast water treatment systems. For the second quarter of 2021, the company expects the scheduled off-hire to be in the range of 90 to 110 days.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

DHT Daily Technical Chart

Stock Recommendation: DHT’s share price has increased by 20.67% in the past nine months and is currently trading at a higher end of the 52-week range of USD 4.52 to USD 6.62. The stock is currently trading far above its 200 DMA levels. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 6.91. Considering the increase in the stock price in the past nine months, expected improvement in oil demand growth, solid margins, associated risks, and the current valuation, we recommend a “Hold” rating on the stock at the closing price of USD 6.48, up by 1.73% as of June 10, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

Teekay Tankers Ltd.

TNK Details

Teekay Tankers Ltd. (NYSE: TNK) is an operator of medium-sized oil tankers. It is engaged in the transportation of crude oil and refined petroleum products to global oil companies. As of March 31, 2021, the company’s fleet consists of 55 vessels, including four in-chartered vessels and one 50%-owned Very Large Crude Carrier (VLCC). The company generates revenues from two types of contracts, namely 1) Voyage Charters 2) Time-charters. As of June 10, 2021, the company’s market capitalization stood at USD 521.45 million.

Fleet overview (Source: Quarterly Report, Q1FY21)

Purchase of vessels: In March 2021, the company acquired six Aframax tankers for a total cost of USD 128.80 million as part of the repurchase contract under the sale-leaseback arrangement. The vessels will be delivered in September 2021. In May 2021, the company purchased two Suezmax tankers for a total cost of USD 56.70 million using its available cash.

Q1FY21 Results: The company reported a 58.24% decline in total revenues to USD 142.74 million in Q1FY21 (ending March 31, 2021) compared to USD 341.90 million in Q1FY20 (ending March 31, 2020), primarily due to a decline in voyage charter revenues. It reported a loss of USD 21.36 million in Q1FY21 compared to a profit of USD 106.83 million Q1FY20. As of March 31, 2021, the company had cash and cash equivalents of USD 87.59 million and total debt of USD 600 million.

Key Risks: The tanker industry is volatile in nature. The companies in this industry have observed frequent fluctuations in profitability due to rapid changes in the economics of tanker capacity and oil products. Hence, there might be a significant increase or decrease in the company’s revenues and profitability. In the current situation, an extension of pandemic-related curbs and travel bans can weigh on the oil demand, thus affecting volumes and rates and hence, the company’s profitability and cash flows.

Outlook: For Q2FY21, the company expects a decline in revenues due to a reduction in 320 net revenue days. The company is also anticipating its vessel operating expenses to increase by approximately USD 1 million due to the timing of repair and maintenance activities.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

TNK Daily Technical Chart

Stock Recommendation: TNK’s share price has increased 27.85% in the past nine months and is currently trading in the slightly higher band of the 52-week range of USD 8.90 to USD 17.90. The stock is currently trading above its 200 DMA levels. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 16.58. Considering the surge in the stock price in the past nine months, expected improvement in oil demand growth, company’s fleet size, and current valuation, we recommend a “Hold” rating on the stock at the closing price of USD 15.65, up by 1.29% as of June 10, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.