Midstreaming is only one part of the global oil industry’s transport network. Tankers are another, moving crude oil, petroleum products, and liquified natural gas around the world, in bulk. Bermuda-based DHT operates a fleet of 27 crude oil tankers, all rated VLCC (very large crude carrier). These vessels are 100% owned by the company, and range in tonnage from 298K to 320K. VLCCs are the workhorses of the global oil tanker network.
After four quarters of sequential revenue gains, even through the ‘corona half’ of 1H20, DHT posted a sequential drop in revenues from 2Q20 to 3Q20. The top line that quarter fell from $245 million to $142 million. It’s important to note, however, that the 3Q revenue result was still up 36.5% year-over-year. EPS, at 32 cents, was a dramatic yoy turnaround from the 6-cent loss posted in 3Q19.
DHT has a history of adjusting its dividend, when needed, to keep it in line with earnings. The company did that in Q3, and the 20-cent per regular share payment was the first dividend cut in 5 quarters. The general policy is a positive for dividend investors, however, as the company has not missed a dividend payment in 43 consecutive quarters – an admirable record. At 80 cents per share annualized, the dividend yields an impressive 14%.
Kepler analyst Petter Haugen covers DHT, and he sees potential for increased returns in the company’s contract schedule. Haugen noted, “With 8 out of 16 vessels ending their TC contracts by end Q1 2021, we believe DHT is well positioned for when we expect freight rates to appreciate in H2 2021E.”
Getting into more details, Haugen adds, “[The] main underlying drivers are still intact: fleet growth will be low (1% on average over 2020- 23E) and the US will still end up being a net seaborne exporter of crude oil, making further export growth from the US drive tanker demand. We expect spot rates to improve again during 2021E, shortly after oil demand has normalised. We expect average VLCC rates of USD41,000/day in 2022E and USD55,000/day in 2023E.”
In line with his comments, Haugen rates DHT a Buy. His $7.40 target price suggests that this stock can grow 34% in the months ahead. (To watch Haugen’s track record, click here)
The rest of the Street is getting onboard. 3 Buys and 1 Hold assigned in the last three months add up to a Strong Buy analyst consensus. In addition, the $6.13 average price target puts the potential upside at ~11%.
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