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How DHT Holdings Has Been Improving Its Leverage

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Debt

DHT Holdings’ (DHT) debt has risen to $662 million as of the end of 4Q15 from $621 million in 3Q15. When compared to the start of 2015, DHT’s debt level hasn’t changed much.

DHT, like other crude (DBO) tanker companies such as Nordic American Tanker (NAT), Teekay Tankers (TNK), Tsakos Energy Navigation (TNP), Euronav (EURN), and Frontline (FRO), is capital intensive. Looking at its financial leverage is of utmost importance. You can read more about the financial leverage of DHT’s peers in How Crude Tanker Companies Differ Based on Their Leverages.

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DHT’s leverage

A company’s debt-to-equity ratio is an indicator of its financial leverage. This ratio tells us the percentage of a company’s assets that are financed by debt and indicates the financial risk of a company. A higher ratio means higher financial leverage.

DHT’s debt-to-equity ratio rose to 89% at the end of 4Q15 from 86% in the previous quarter. Compared to the start of the year, this ratio has fallen from 97%.

Since the beginning of the year, the company completely prepaid its loan of $42 million on the DHT Hawk and Falcon. The company will continue its deleveraging campaign, and we expect DHT’s leverage ratios to further improve. Along with long-term solvency, it’s also important to see a company’s short-term liquidity position.

Current ratios

DHT’s current assets as of the end of 4Q15 are $218 million, and its current liabilities stand at $52.8 million. Its current ratio, calculated as its current assets over its current liabilities, is 4.13x. This is an improvement from 3.07x in the previous quarter and 3.13x from the start of the year. The company does not have any immediate liquidity concerns.

Investors who are interested in broad exposure to the industrials sector can invest in the SPDR Dow Jones Industrial Average ETF (DIA).

In the next part of the series, let’s have a look at DHT Holdings’ valuations.

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