When operating environment changes, investors have to reconsider their trade position. DHT Holdings Inc (NYSE:DHT) isn’t held back due to the panic there isn’t plenty upside. Fellow provider Shark Traders just released an article named Buy DHT Holdings. This tanker operator provides an upside potential of 75%. He’s not wrong related to the promising stance but as expressed by many analysts in their articles, in shipping industry focus should be on the downside.
Tanker rates are highly volatile. As per historical perspective from Euronav NV Ordinary Shares (NYSE:EURN) presentation, which reflects how dicey it is to model a $25,000 per day return annually or a few years out. Because shipping prices are so unpredictable and the shipping firms are price takers, the main focus is on the downside while preferring firms that have a few ships bare to spot. Market requires some spot exposures as it look for the positive Black Swan exposure.
Shark Traders highlights on the significance of downside protection by talking management comments on scrap prices. Yet, there was another vital point that Trygve Munthe stated during the earnings call. He stated that the mean scrap value can be nearly $12 million per vessel. Presently, DHT Holdings has almost two Aframax vessels and 19 VLCC vessels. Thus, the fleet book value, which it has 100% stake, comes down over its current market capitalization. Due to this reason, analysts believe that DHT’s shares price is trading below its intrinsic value.
Munthe did pin scrap value at nearly $12 million a vessel. The book value of the fleet excels the company’s market capitalization. Also, the scrap value of fleet is above its market capitalization. The concern being it doesn’t excel its enterprise Value. DHT Holdings has liabilities of nearly $700 million. That’s why expert consider the CEO was being ironic when he stated he couldn’t follow the urbane math of the gentleman shouting in. If all the ships are scrapped today, the stock would be directly worthless.