A Fundamental Valuation of DHT Holdings

Lars Aksel Furuseth

Student thesis: Master thesis


DHT Holdings is one of the largest crude oil transportation shipping companies, operating 27 very large crude carriers (VLCC’s). The company was established in 2005 and is listed on the New York Stock Exchange. Seven of DHT’s VLCC’s are currently chartered on contracts with fixed freight rates, whilst the remaining 20 vessels are operating on the spot market. In this thesis, both a strategic and a financial analysis will be conducted to determine whether DHT is under- or overvalued per 31.12.2019.
The strategic analysis explains that the most important driver for crude oil transport is the global economic growth and consequently increased demand for oil. Key takeaways from the analysis is that the economic growth is expected to be particularly strong in Asia, such as China and India, and that the global demand for crude oil transport will be greater than the supply, hence the industry is expected to be increasingly profitable the next five years. In the continuation of the strategic analysis the industry competition is identified as though, especially when demand and freight rates are low. Further on, an internal analysis identified the young fleet of DHT as a temporary competitive advantage.
In the financial analysis, the analytical income statement and balance sheets is calculated, and DHT’s historical financial performance was analyzed and compared to the industry. It was observed that DHT performed well compared to its industry peers and had a return on its invested capital above the weighted average cost of capital in 2019, implying value creation from its operations. The short-term liquidity risk of DHT was regarded as low, while the long-term liquidity risk was analyzed as low to medium.
The fair market value of DHT’s equity was calculated by weighting the findings from the discounted cash flow (DCF) model and an asset-based model. In the DCF-model a WACC of 6,80% was used as relevant discount rate, and in combination with the sum-of-the-parts asset based valuation, a fair market value of equity was valued at 1.428,7m USD and a subsequent target price of 9,96 USD per share. This indicated that DHT was undervalued by 20,3% per end-year 2019.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2020
Number of pages95