DHT Holdings, Inc.
DHT Industries, Inc. (NYSE: DHT) is a crude oil tanker company. The company’s fleet contains 28 Very Large Crude Carriers (VLCC) and the combined capacity of the tanker fleet is 8,660,835 deadweight tons (dwt) as of March 31, 2021. The company generates revenues from two types of contracts, namely 1) Time Charter contracts 2) Voyage Charter contracts (operating in the spot market). As of May 12, 2021, the company’s market capitalization stood at USD 992.98 million.
Fleet modernization to enhance efficiencies: On January 21, 2021, the company announced the agreement to acquire two 2016 build VLCCs for a total of USD 136 million. It financed this transaction with available liquidity and projected mortgage debt. The acquisition is expected to be accretive to the company’s earnings per share (EPS). Subsequently, the company announced the sale of its three oldest vessels in Q2FY21. This transaction decreases the average fleet age from 9.4 years to 8.2 years. The company expects to book a profit of around USD 15 million for these three transactions in Q2FY21. Around USD 33.50 million of bank debt would be repaid from this transaction. The modernization is likely to improve the operational and energy efficiency of the fleet.
Q1FY21 Results: The company reported a slight decline of 4.40% in total revenue 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 contributes 65.31%, while the Voyage Charter contract segment contributed 34.69% of the net sales in Q1FY21. 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.
Key Risks: The companies in this industry have witnessed frequent changes in profitability due to speedy variations in the demand and supply of tanker capacity and oil products. Historically, the tanker industry is cyclical in nature. Hence, there might be a significant increase or decrease in the company’s financial state of affairs. In the current context, 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, 75% of the available VLCC days has been at an average shipping rate of USD 21,300 /day on a discharge-to-discharge basis. The company is expecting to utilize the opportunity of current weak freight market conditions by carrying out dry dockings, installation of scrubbers, and ballast water treatment systems. The company expects the scheduled off-hire to be in the range of 90 to 110 days during the second quarter of FY21. There is a considerable likelihood of a pickup in growth in oil demand in the short-to-intermediate term due to the global rollout of vaccines and subsequent curtailment of travel curbs and lockdowns.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation
(Data Source: Refinitiv, Thomson Reuters, 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 (Source: Refinitiv, Thomson Reuters)
Stock Recommendation: DHT has declined 9.53% in the past twelve months and is currently leaning towards the mid-point of the 52-week range of USD 4.52 to USD 6.62. The stock is currently trading around 200 DMA levels. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 6.54. On the technical chart, the next support level is USD 5.12. Considering the correction in the stock price in the past twelve months, expected improvement in oil demand growth, and the company’s increment in fleet size and efficiency, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 5.79, down by 1.36% as of May 12, 2021.
* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.
Vinci Partners Investments Ltd.
Vinci Partners Investments Ltd. (NYSE: VINP) is a Brazil-based investment management company focused on alternative investment management and financial advisory. Its business segments include Hedge funds, Public Equities, Private Equities, Financial advisory services, Investment products and solutions, Real Estate, Infrastructure, and Credit. The company’s Asset Under Management (AUM) grew 25-fold from BRL 1.9 billion in 2009 to BRL 47.5 billion as of 2020, reflecting a CAGR of 33.5%. VINP was listed on NASDAQ on January 29, 2021. Its market capitalization stood at USD 618.08 million as of May 12, 2021.
Growth in AUM (Source: Company Annual Report, FY20)
New Strategy in the Agribusiness sector: On May 10, 2021, the company declared a joint venture with Chrimata, an investment company concentrating on the agribusiness sector, to set up a new strategy co-handled by the company’s Real Estate and Credit business divisions. This joint venture has a ready pipeline of 12 possible investments in the agribusiness sector totaling more than BRL 1 billion. Brazil provides strong competitive advantages in terms of a large agribusiness sector based on climate and soil advantages and having a large addressable local market.
FY20 Results: The company reported a steep increase of 36.88% in assets under management to BRL 47.5 billion as of December 31, 2020, compared to BRL 34.7 billion as of December 31, 2019. This increase was driven by net inflows of BRL 7.1 billion from investment products and solution segment and public equities segment and BRL 2.1 billion of net capital subscription from REIT and private equity fund. The company reported a 14.55% increase in net revenue from services rendered to BRL 339.89 million in FY20 compared to BRL 296.71 million in FY19. The company reported an increase in net income to BRL 169.15 million in FY20 compared to that of BRL 155.63 million in FY19.
Key Risks: Gilberto Sayão da Silva owns 100% of the company’s outstanding Class B shares. It represents approximately 77.30% of the voting power on the company’s issued share capital and control all matters requiring shareholder’s approval. This concentration of ownership and voting power can limit the company’s ability to influence corporate matters.
VINP Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Stock Recommendation: VINP has declined by 41.61% in the past three months and is currently trading in the lower band of the 52-week range of USD 10.50 to USD 19.46. The stock is currently trading below its issue price. Considering the attractive valuation of the newly listed company, track record of solid growth in AUM, and associated risks, we recommend a “Buy” rating on the stock at the closing price of USD 10.86, up by 1.59% as of May 12, 2021. The target price of USD 13.65 represents a Price/Earnings multiple of 3.5x on FY1 EPS of USD 3.90.