Tankers: Storing Value

08/20/2015 10:00 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

We began adding tanker stocks to our aggressive portfolio some seven months ago; as predicted, charter rates have continued to increase, driven by increased offshore storage and shipping demand, asserts Igor Greenwald, energy sector expert and editor of MLP Profits.

Low energy prices and new trade routes have soaked up much of the spare capacity in this long-depressed industry. Low fuel costs have also produced considerable operating cost savings for ship owners.

As a result, many of the tanker stocks have powered ahead and we’re now adding two more picks to our growing tanker flotilla.  

Both have timed this market resurgence just right with discounted acquisitions and a high degree of exposure to rising spot rates.

EuroNav (EURN)

EuroNav is among the leading crude tanker operators worldwide with 27 VLCCs, 23 Suezmaxes, one V-Plus super-super-tanker, and two FSOs (tankers turned into floating storage platforms).

The company is headquartered in Belgium and staffed by Europeans; its tankers steam under the Belgian, French, and Greek flags.

Previously listed on Euronext, EuroNav staged a successful New York public offering in January, using the proceeds for the well-timed acquisition a year earlier of 15 VLCCs, at a bargain price of $980 million.

Last month it swooped in again to buy four brand new VLCCs set to be launched from shipyards in the near term, with options on four more.

Other things to like about EuroNav are its scale, participation in a top VLCC chartering pool, and the fact that fleet management and operations are not subcontracted to a separate affiliate of the sponsor.

The stock has rallied more than 30% in less than six months since its New York IPO, but has much further to go. We’re adding EuroNav—with a prospective yield of close to 11%—to our Aggressive portfolio.

DHT Holdings (DHT)

DHT Holdings is a smaller crude tanker operator incorporated in the Marshall Islands, headquartered in Bermuda, and managed by Norwegians from Oslo.

Like EuroNav, it manages and operates its ships in-house rather than outsourcing those functions to related parties.

Also like EuroNav, DHT made a big acquisition on the cheap last year just before charter rates took off. It acquired Singapore-based owner of seven VLCCs for the bargain basement price of $325 million.

As a result, DHT doubled the VLCC component of its fleet, which now includes the 14 VLCCs, two Suezmaxes, and two Aframaxes. Six more VLCCs are on order for delivery before the end of 2016.

The company has tripled its quarterly dividend to 15 cents per share for a projected annual yield above 7% and could have paid out double that based on its cash flow.

Though DHT Holdings has less exposure to spot rates than EuroNav, like all tanker stocks, it’s for aggressive investors only.

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