Oil and gas prices have experienced a volatile ride over the past couple of years, primarily due to geopolitical tensions and the Russia-Ukraine conflict. Amidst these challenging circumstances, DHT Holdings (DHT), an independent crude oil tanker company, is navigating through choppy waters. Despite geopolitical and supply chain complexities, DHT’s focus on large-volume transportation and its international fleet position it uniquely for potential business expansion and profit growth in the evolving energy market.
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The firm’s earnings performance has been relatively lackluster recently, though revenues are projected to grow significantly in the coming years. The stock shows positive price momentum – up roughly 20% year-to-date, trades at a relative discount to industry peers and offers a healthy dividend yield of almost 9%. It is a solid option for value-oriented income investors.
DHT Is Built for the Current Market
DHT is a crude oil tanker company with a strong presence in the very large crude carriers (VLCC) segment. The company operates through integrated management companies in Monaco, Norway, Singapore, and India.
The company has adopted a counter-cyclical approach to investments, fleet employment, and capital allocation, adding a layer of financial stability during cyclical and volatile markets such as the current one.
DHT management anticipates promising near-term market conditions where it operates due to continued oil demand growth, extended transportation distances, and a limited supply of new ships coupled with a rapidly aging fleet. These market dynamics present an encouraging outlook for DHT’s growth prospects and profitability.
DHT’s Recent Financial Results
The company recently reported its Q2 2024 results. Revenue for the quarter was $103.70 million, marginally beating analysts’ estimates of $103.49 million. Earnings from vessels in the spot market reached an impressive $52,700 per day, while time-charter vessels made $36,400 per day, achieving an average time charter equivalent (TCE) rate of $49,100 per day.
Also, vessel operating costs came in at $20.4 million, including exceptional expenses and timing of procurement of spares and consumables, and G&A expenses capped at $4.5 million. EBITDA was $80 million, while net profit was $44.5 million. Earnings per share (EPS) of $0.27 fell short of consensus projections of $0.28
The company’s financial footing remains solid, evidenced by the low leverage and significant liquidity of $263 million on the balance sheet, comprised of $73 million in cash and access to $191 million from revolving credit lines. The company continued its dividend payment streak for the 58th consecutive quarter, declaring a $0.27 per share dividend, representing a dividend yield of 8.86%.
Following the second-quarter results, DHT’s management has offered guidance for Q3, estimating a total term time charter of 552 days at an average rate of $37,700 per day. Total spot days for the quarter are 1,630, with 75% (approximately 1,230 days) already booked. The average spot rate booked to date is $42,100 per day, well above the P&L break-even point for the quarter of $23,600 daily.
What Is the Price Target for DHT Stock?
The stock has been on an extended upward trend, climbing over 137% in the past three years. It trades near the middle of its 52-week price range of $8.75 – $12.80 and shows positive price momentum, trading above its 20-day (10.67) and 50-day (10.82) moving averages. The P/E ratio of 11.29x sits below the Oil & Gas Midstream industry average of 13x, suggesting the stock is undervalued relative to industry peers.
Analysts covering the company have been cautiously optimistic about the stock. DHT Holdings is rated a Moderate Buy based on three analysts’ most recently issued recommendations and price targets. The average price target for DHT stock is $14.50, representing a potential upside of 32.42% from current levels.
Download on DHT
In spite of geopolitical unrest and supply chain issues, DHT Holdings is well-positioned in the oil tanker market, given its strong presence in the VLCC segment. Based on promising market conditions due to rising oil demand, increased transportation distances, and a limited supply of new ships, DHT Holdings’ growth and profitability outlook appears positive. The stock shows positive momentum, trades at a discount, and yields a significant dividend. DHT is an appealing option for investors interested in exposure to oil & gas while prioritizing value and income.
