TORM (Investment case): Strong Q1, upgraded 2026 guidance and sector-leading dividend yield

TORM delivered a strong Q1 2026 with TCE earnings of USD 286m (+34% y/y), EBITDA of USD 201m (+48% y/y) and net profit of USD 122m (+94% y/y), driven by fleet-wide TCE rates of USD/day 34,937 (+30% y/y) and a slightly larger fleet of 95 vessels. Return on Invested Capital rose to 18.0% in the quarter (10.3% in Q1 2025), and basic EPS reached USD 1.21 (USD 0.64). The Board approved an interim dividend of USD 0.70 per share, equivalent to a 58% pay-out of net profit, bringing the trailing four-quarter distribution to USD 2.42 per share and underlining the consistency of the quarterly payout policy.

The most material development in the quarter was the upgrade to the full-year 2026 guidance, with TCE earnings now expected at USD 1,150-1,450m (previously USD 850-1,250m) and EBITDA at USD 800-1,100m (previously USD 500-900m). The upgrade reflects both the strong start to the year and the record rate levels seen in April, with Q2 2026 coverage at 57% at an average rate of USD/day 71,494 - more than double the Q1 average. By vessel class, Q2 coverage stands at 64% for LR2s at USD/day 70,764, 60% for LR1s at USD/day 61,774 and 54% for MRs at USD/day 73,485, illustrating how broad-based the rate strength has become across segments.

The quarter illustrates a central point in the investment case: TORM's earnings remain highly geared to spot rates, but the underlying market backdrop has tightened materially. The closure of the Strait of Hormuz, through which ~30% of the world's daily crude oil supply and ~14% of clean petroleum products pass, has pushed tanker rates to record levels, with strength spilling directly into the product tanker market. Over 50 LR2 vessels have shifted into crude trading since the start of the year, tightening effective CPP fleet capacity by an estimated 4%, while more than 200 crude and product tankers remain stranded within the Persian Gulf, further reducing available supply.

The key investment reasons center on a supportive multi-year supply backdrop combined with strong cash returns. The global product tanker fleet is the oldest it has been in twenty years, with 21% of capacity now over 20 years old and ripe for scrapping, while new ordering activity halved to 8.2m dwt in 2025 from 22.9m dwt in 2024 and the orderbook stands at ~16% of the fleet, pointing to potentially low net fleet growth toward the end of the decade. International sanctions on roughly 10% of the global fleet further reduce vessel supply in the open market. On top of this, TORM's One TORM platform delivers leading TCE rates and a sector-leading ROIC of 18.0% in Q1 2026, the balance sheet remains conservative with a loan-to-value ratio of 25.1% (down from 29.4% at year-end 2025) and over USD 655m in available liquidity, and the company operates predominantly in the spot market, meaning sustained rate improvement flows almost directly to the bottom line and, in turn, to dividends.

The key risks remain centered on volatility and timing. TORM's spot exposure cuts both ways: a resolution to the US-Iran conflict or a reopening of Hormuz could quickly reduce freight rates. Crude tanker cannibalization of LR2 capacity is currently suppressed by record crude rates but could reverse if the crude market softens, releasing tonnage back into the CPP segment. The orderbook at ~16% of the fleet with accelerating 2026-2027 deliveries could weigh on rates if demand growth disappoints, and tariffs and trade policy uncertainty may weigh on global oil demand and disrupt established trade patterns.

From a valuation perspective, on 2026E consensus estimates, TORM trades at 3.7x EV/EBITDA and 4.8x EV/EBIT, a 13-16% discount to product tanker peers (4.5x and 6.0x). The discount widens to 28% on 2026E P/E at 4.3x versus the peer median of 6.0x. TORM's estimated 2026E dividend yield of 16.0% is the highest among peers and well above the peer median of 13.3%, reflecting the consistent quarterly payout policy and the direct earnings leverage from strong spot rates. At a share price of DKK 202.6 (~USD 30.9), TORM trades at a ~4% premium to its Q1 2026 self-reported NAV per share of USD 29.7, but with tanker asset prices rising further in April on record freight rates, the underlying fleet value has likely appreciated, potentially eliminating the NAV premium at current levels.

For further insights into the Q1 results and management's focus areas for the rest of 2026, you can watch the event we hosted with TORM: https://www.inderes.dk/videos/torm-praesentation-af-regnskabet-for-1-kvartal-2026

Disclaimer: HC Andersen Capital receives payment from TORM for a Digital IR subscription agreement. /Rasmus Køjborg, CFA & William Jørck 11:05 28/05-2026