Resurrected DOF Group is heading for a big profit and even a return of dividends following its debt restructuring.
Investment bank SpareBank 1 Markets started its coverage of the Norwegian shipowner with a “buy” recommendation as it expects demand to rise in the key market of Brazil.
The Oslo-listed offshore support vessel company converted NOK 5.2bn ($465.5m) of debt to equity as banks and bondholders took over earlier this year.
The swap lowered DOF’s debt leverage ratio to 5.3 times Ebitda to 3.7 times.
“Improved market conditions, especially in the key subsea market, caused leverage ratio to drop further to 3.3 times by the end of Q2,” analysts Christopher Mollerlokken and Trym Gulbrandsen said.
“We expect continued market improvements in the subsea market driven by the strong cash flow generated by exploration & production [E&P], Petrobras’ growth ambitions and the stable subsea supply side.”
By the end of 2025, SpareBank 1 expects DOF’s leverage ratio to have dropped below two times Ebitda, which should make a refinancing before the upcoming January 2026 debt maturity a “non-issue.
“We assume DOF will use its cash flow going forward to pay down debt, partly also due to cash sweeps being in place,” Mollerlokken and Gulbrandsen said.
“If our estimates are roughly correct, DOF would be in position to pay dividends once refinancing of 2026 debt is done in 2025, meaning a potential first dividend could be paid in 2026.”
Brazilian demand to increase
Brazil is the most important single market for DOF, where it has 22 ships operating.
In its most recent strategic plan for 2023 to 2027, state oil company Petrobras guided E&P spending to increase by 51% in 2023, and another 17% in 2024.
Part of the increase comes as a result of Petrobras aiming to increase its production from 2.6m barrels per day in 2023 to 3.1m bpd in 2027.
Petrobras aims to add 16 new production vessels in the Santos and Campos basins, which will benefit the demand for DOF’s oil and gas ships.
SpareBank 1 is forecasting DOF’s net profit to hit NOK 2bn this year, from NOK 852m the year before. By 2024, the company could be earning NOK 2.2bn, and then NOK 2.7bn in 2025.
The investment bank has a “modest” target price of NOK 70 per share, against NOK 53 in Oslo this week, with further upside possible.
