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Where Are DHT’s Earnings Heading?

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Article overview

In the previous two articles, we analyzed DHT Holdings’ (DHT) revenue and cost side. In this article, we’ll see where the company’s EBITDA (earnings before interest, tax, depreciation, and amortization) is heading.

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EBITDA

Crude tanker companies have high fixed operating costs. High fixed costs prove rewarding when revenues are increasing. A company with high fixed costs will see its profits rise by a higher percentage when its revenue is trending upward.

DHT’s revenue rose by 3% over the previous quarter and by 31% over the same period last year. At the same time, the company’s EBITDA rose by 9% over the previous quarter and 133% over the same period last year.

DHT’s EBITDA rose to $59.6 million in the fourth quarter from $54.8 million in the previous quarter and $25.6 million in 4Q14.

Why look at EBITDA?

EBITDA is an indicator of the financial performance of a company. It tells us the operating profit of a company. Crude tanker companies are highly capital intensive and have high non-cash costs including depreciation. For this reason, it’s important to assess the performance of these companies based on EBITDA. Also, companies are generally valued based on EV-to-EBITDA (enterprise value to EBITDA).

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EBITDA margin

DHT’s EBITDA margin for 4Q15 is 62%, which is one of the highest in the industry.

  • Teekay Tankers’ (TNK) EBITDA margin is 49%.
  • Tsakos Energy Navigation’s (TNP) EBITDA margin is 50%.
  • Euronav’s (EURN) EBITDA margin is 66%.
  • Nordic American Tanker’s (NAT) EBITDA margin is 72%.

EBITDA estimates

Wall Street analysts estimate that DHT’s EBITDA will rise by 26% quarter-over-quarter. Analysts also estimate 2016 EBITDA to be $233 million—9% higher than 2015’s EBITDA.

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

In the next article, we’ll examine DHT’s assets.

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