Tag Archives: DHT

Oil Tanker Sector Update (SELL): Disappointing Winter Market

Although we cannot rule out another dead cat bounce, this year’s winter market has been disappointing. As we predicted, VLCC spot rates peaked at $32k/d, and volatility created opportunities for the attentive investor. However, oil tanker spot rates have averaged $11.7k/d QTD vs our forecast of $13.4k/d, with lower net supply growth (0.3% q/q vs 1.0%) offset by even lower implied demand growth vs our forecast (4.8% vs 7.1%). We downgrade the sector from HOLD to SELL as we see further downside risk to share prices and asset values ahead of the inflection point in mid-‘18E.

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Suezmax Resales 10% Below Current Valuation

Summary

  • Dong-A Spica & Dong-A Capella said to have been sold @ $48 each to two sperate Greek buyers.
  • 10% below our current generic fair value for a similar vessel, which is under revision for downgrade.
  • Consistent with our September report where we forecast asset values down ~10% by 2Q18E.
  • Last comparable done was the 2018 resale RS Kaystros sold to Polembros @ $49m in late October.
  • Key takeaway: Current asset values below current broker quotes + added downside risk as the Winter market draws to an end around 1Q18.

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Oil Tanker Sector Upgraded to HOLD (SELL): Trade on Volatility as Recovery Looms

From being ready to write off the upcoming winter season a very short time ago and looking to mid-2018 for any meaningful recovery in share prices, the recent surge in scrapping has left us with a newfound cautious optimism. Using VLCC spot rates as a benchmark, we see average rates of USD 23k/d in 4Q17E with peaks towards USD 32k/d. We see opportunities for the attentive investor in the short term, but believe shares could revert to current levels or below by mid-‘18E, representing the cyclical inflection point. Also taking into account that most share prices have fallen close to our targets; we upgrade the oil tanker sector to HOLD (from SELL) and believe volatility to be key to monetary success for investors over the next six months. 

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DHT-US: Initiation (SELL, TP 4.0)

After an aggressive M&A attempt by Frontline that by some accounts is still ongoing but from a financial standpoint appears dead, the company acquired BW’s fleet of VLCCs through a combination of new shares and cash, and has emerged as one of the largest listed crude tanker companies with 30 VLCCs and 2 Aframaxes on a fully delivered basis. Although we expect the company to continue scaling down its dividends, we believe DHT has enough cash to maintain a yield of some 3-4% through the trough given its low cash break-even vs peers and recently secured USD 383m in new debt. If our earnings base case were to undershoot significantly, the company can further ease the strain on cash through the abolition of dividends and/or increasing leverage on its balance sheet (net LTV peak at 67% in 3q18E). Despite being our top-pick in the crude tanker sector, we initiate coverage of DHT with a SELL recommendation and target price of USD 4.0 (-6%) given the lackluster short-term outlook for the sector.

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