DHT Holdings: Best Balance Between PNAV, LTV, And Fleet Quality (NYSE:DHT)

Note: I have covered DHT Holdings (NYSE:DHT) previously. In my previous article on DHT, I pointed out the company’s strengths, such as its VLCC-only fleet, prudent capital structure, ample liquidity, and adequate margins. Since then, the VLCC market has become tighter due to Sovcom sanctions and the deepening Red Sea Crisis. This article discusses DHT’s last report from February 07, 2024, and crude oil tanker market dynamics.

Introduction

Crude tankers remain one of my favorite investment themes for 2024. All segments, Aframax, Suezmax, and VLCCs, show the same symptoms: constrained supply and growing demand. However, not all crude oil tankers are equal. In my opinion, the VLCCs offer the best upside potential at the current stage of the tanker cycle. Besides majors like Frontline (FRO), we have companies offering exposure to only one type of crude oil tanker. Such an example is DHT Holdings. The company is VLCC pure play. It provides a robust balance sheet, a fleet with 100% scrubber-equipped ships, and growing profitability at a reasonable price. Besides, DHT distributes dividends with attractive yields at 8.92%.

DHT Fleet

DHT owns 24 VLCCs with an average age of 10 years. All company ships are scrubber-equipped. The table below shows the DHT fleet.

DHT ordered four new scrubber-fitted vessels, expected to be delivered between April and December 2026, at an average price per ship of $128.5 million. Hanwha Ocean and Hyundai Heavy Industries will build the vessels. DHT’s agreement includes options for four additional ships, which are expected to be delivered in 1H27. DHT plans to finance those vessels with its operating cash flow and new mortgage debt.

The VLCC supply side remains constrained by a low order book, still below 3%, and limited shipyard capacity due to significant orders for another ship (LPG, LNG, containers). These limitations push the delivery dates for new vessels further. In other words, the VLCC tanker market is far from the supply glut.

Another factor is the aging fleet. As stated in the DHT press release, by the end of 2026, about 50% of the global VLCC fleet is expected to be older than 15 years, and 20% to be older than 20 years. The chart below from the last presentation shows VLCC order book and age profile.

2024 has two expected deliveries, while in 2025, five. 2026 is supposed to be the decisive year, with 11 new builds to be delivered. However, the global VLCC fleet is aging progressively, so fleet growth is non-existent.

Another constraint for the supply side is the large fleet of VLCCs involved in sanctioned trades-160 vessels, as per the DHT press release.

160 VLCCs is a lot compared to the total global fleet of 887 VLCCs. Those ships will, sooner or later, be subject to fines and sanctions, so their commercial opportunities will be limited. With more sanctions on Russian entities and, most importantly, on Sovcomflot, the supply side for crude tankers will not improve soon. The following chart from Vortexa shows the impact on tankers involved in Urals transportation.

With the increasing number of sanctions, Western tanker companies might carry Russian crude. This means higher demand for crude oil tankers, exacerbating the growing deficit.

DHT’s last report figures

Let’s look at the operational highlight for 4Q23/FY23.

DHT maintained high exposure to the spot market (70-80%) over 2023 and 2022. We are still in the expansion phase of the tanker cycle, so employing most of its ships under a spot contract is a viable decision. For the next 12-18 months, I expect to remain strong for VLCCs.

DHT realized spot rates of $51,200 for FY23 and $29,000 for FY22. Looking in detail, 4Q23 was the weakest quarter, with $43,600 spot rates, while 2Q23, with $64,800, was the best. DHT TC’s rates for FY 23 were $36,400 vs. $34,600 for FY22.

DHT delivered strong financial results in FY23. The table below shows the financial highlights for 4Q23/FY23.

QoQ DHT delivered 9% higher shipping revenue, reaching $142 million in 4Q23. Adjusted EBITDA grew by 7.7% for the same period; for 4Q23, DHT declared $0.22/dividend. Looking at the big picture, DHT delivered robust results in FY23. The shipping revenue increased from $450 million FY22 to $556 million FY23. Adjusted EBITDA reached $302 million, 77% higher than in 2022. In the bottom line, EPS FY23 is $0.99/share, while FY22 is $0.48/share. DHT distributed dividends with an 8.92% TTM yield for 2023.

The average spot rate booked for 1Q24 is $55,900/day, higher than the FY23 and 4Q23 average figures. Spot P&L is estimated at $25,900/day. DHT P&L and cash break-even 2024 estimates and EPS sensitivity are shown below.

At $55,000/day TCE rates, DHT will reach $1.04 EPS, 10% higher than FY23 EPS. I would not be surprised to see spot rates at $65,000-$75,000 in 2024. So, DHT EPS will rise to $1.6-$1.85. The company pays dividends 100% of its ordinary net income. I anticipate higher dividend yields in FY24.

On December 31, 203, DHT reported $74 million in cash and $398 million in long-term debt. The company’s total interest-bearing debt is $428 million. Below is a table representing DHT’s debt composition and amortization schedule.

DHT’s most significant portion of the debt is owed to ING, a $279 million credit facility with a 2029 maturity and SOFR + 1.8/1.9% interest rate. In December 2024, DHT paid $23.7 million under its Credit Facility with Nordea. On the other hand, the company drew $24 million under its ING Revolving Credit Facility. The withdrawal was subsequently repaid in January 2024. In 2024, DHT has to repay a $33 million debt.

DHT secures its debts with its fleet. The value of the ships must exceed 135% of the borrowings. DHT maintains a prudent capital structure with a gross LTV of 20.9%. The company has ample liquidity. DHT delivered $251 million in operating cash and $193 million in operating income in FY23. Over the same period, the company had $29 million in net interest expense.

Valuation

Compared to my last report on DHT, 10Y VLCC prices have increased by $2.0 million, reaching $82 million. DHT increased its total liabilities by $26 million and decreased its cash reserves, resulting in lower current assets.

To value the DHT fleet, I used Fearnley’s regular report. Those reports are updated once per week and include tankers (dirty and clean), bulk carriers, LPG and LNG carriers’ day rates, and price estimates for new builds, 5Y old, and 10Y vessels. The table below shows second-hand prices for bulk carriers and tankers.

To estimate, DHT’s fleet replacement cost takes the price of 10Y VLCC, $82 million. DHT’s fleet replacement cost is $1,968 million.

DHT’s fleet replacement cost is $1,968 million.

Inputs for the NAV equation are:

• Fleet replacement value: $1,968 million
• Current assets: $200 million
• Total Liabilities: $460 million

DHT’s market capitalization is $1,790 million, while its net asset value is $1,708 million, resulting in 104% PNAV. Compared with its VLCC/Suezmax pure play competitors, Nordic Tankers (NAT) and Okeanis Eco Tankers (ECO), DHT strikes the best balance between fleet age and specs, LTV and PNAV.

NAT has a fleet of 20 Suezmax Tankers with an average age of 13 years, and none of its ships has scrubbers. The company trades at 102% PNAV and has 26% LTV. On the other hand, ECO owns the best fleet in the group, 8 VLCC and 6 Suezmax, with an average age of five years. All vessels are scrubber-equipped. However, the best fleet comes at a steeper price, 120% PNAV and 52% LTV.

The table below compares DHT, NAT, ECO EV/Sales, EV/EBITDA, and P/TBV.

As a company, DHT offers the best value for the buck due to its fleet qualities and robust balance sheet. Its multiples confirm my view. DHT trades at 3.8 EV/Sales, 7.0 EV/EBITDA, and 1.7 P/TBV.

Final thoughts

Since I published my article on DHT in January, my crude tanker thesis has gained more traction. The Red Sea crisis will not be resolved soon. Houthis’ constant attacks on commercial ships remind us that fact on a daily basis. The sanctions mentioned above on Sovcom add more constraints to the already limited crude tanker supply.

Declining VLCC demand is the most pronounced risk for my thesis. OPEC+ production cuts can squeeze crude tankers demand. Saudi Arabia plans to keep its voluntary cuts by one mbpd, maintaining a daily output of 9 Mbps. Russia intends to reduce its production by 471,00 bpd. To give a context, one VLCC can carry 2.0 million barrels of oil, as shown in the chart below:

The OPEC cuts are roughly equal to one VLCC capacity. In a non-eventful year, that would depress the tanker market. However, we live in turbulent times, dominated by geopolitical uncertainty. So, the OPEC production cuts are insufficient to shift the struggling supply and growing demand.

DHT has adequate liquidity and a robust capital structure, so the financial risk is mitigated to a minimum. The newly ordered vessels will be financed by the company’s operating cash flow. DHT has low P&L breakeven/cash break-even and high exposure to spot. So, I am confident in DHT’s ability to finance its new buildings. The sensitivity to rising TCE may boost the company’s profitability, resulting in higher dividend yields. Of course, TCE sensitivity is a double-edged sword. Once the market peaks and the rates start falling in a matter of months, a money-printing company can transform into a heavily indebted loser.

Nevertheless, we are far from the current cycle’s peak, so betting on crude oil tankers is still an enticing idea. The VLCC sub-segment is the most attractive, compared to Aframax and Suezmax tankers. The chart below tells why.

The ratio between 15+ old ships as a percentage of the fleet and order book as a percentage of the fleet is lowest for VLCCs. Simply put, VLCC’s global fleet growth will be almost non-existent in the coming 12-18 months. DHT is the best way to play that thesis, offering the best balance between fleet specs, price, and capital structure. I give DHT a buy rating.