BetterTrades looks at Ship Finance International Ltd. - May 22, 2008
Oil tanker owner and operator Ship Finance International Ltd. (SFL) made it known early Thursday morning that the company’s fiscal 1Q profits advanced 8%, however, sales declined below Wall Street's expectations. For the quarter ended March 31st, the Hamilton, Bermuda-based company reported income of $59.8M, or $0.82 per share, compared with $55.3M, or $0.76 per share, in the year-ago period. Revenues for the company surged 41% to $121.9M from $86.5M in the prior-year quarter. Results included a negative non-cash accounting adjustment of $2.2M, or $0.03 per share. Analysts, on average, estimated earnings of $0.85 per share on sales of $131.4M. In the 1Q, the company experienced a robust spot-tanker market, which has remained strong so far in the 2Q, Ship Finance proclaimed. The company was also able to maintain roughly flat operating expenses compared with the same quarter last year. In addition, Ship Finance International Ltd. announced Thursday that the company has increased its quarterly cash dividend by $0.01 to $0.56. The dividend will be paid on or about June 30th to shareholders of record as of June 17th. Ship Finance also stated that they plan to further increase its dividend in the 3Q to $0.58. By the end of today’s trading session, shares of Ship Finance were slightly lower on the day, down $1.64, or 5.1%, to finish at $30.63.
Ship Finance International Limited, incorporated in October of 2003, is a Bermuda-based shipping company that is engaged primarily in the ownership and operation of vessels and offshore related assets. The Company is also involved in the charter, purchase and sale of assets. Ship Finance operates through subsidiaries and partnerships located in Bermuda, Cyprus, Liberia, Norway, Delaware, Singapore and the Marshall Islands. The Company's assets consist of 33 oil tankers, eight oil bulk ores (OBOs) configured to carry dry-bulk cargo, one dry-bulk carrier, eight container vessels, two jack-up drilling rigs and six offshore supply vessels. Ship Finance's customers include Frontline Ltd (FRO), Horizon Lines Inc. (HRZ), Golden Ocean Group Limited, Seadrill Limited, SCAN Geophysical ASA, Taiwan Maritime Transportation Co. Ltd., Bryggen Shipping & Trading AS, Heung-A Shipping Co. Ltd., Deep Sea Supply Plc and Compania Sud Americana de Vapores. In March 2008, the Company entered into an agreement to acquire two building chemical tankers from Bryggen. In December 2007, Ship Finance agreed the sale of two non-double hull Suezmax tankers. The vessels were delivered in December 2007 and January 2008. In August 2007, the Company entered into an agreement to acquire five offshore supply vessels from Deep Sea. The vessels were delivered in September and October 2007. In November 2007, Ship Finance entered into an agreement to acquire a further two offshore supply vessels from Deep Sea. The vessels were delivered to the Company in January 2008. In January 2007, Ship Finance sold five single-hull Suezmax tankers to Frontline. The vessels were delivered in March 2007. In May 2007, the Company re-chartered the single-hull VLCC Front Vanadis to an unrelated third party. The new charter is in the form of a hire-purchase agreement, where the vessel is chartered to the buyer for a 3.5 year period, with a purchase obligation at the end of the charter.
SFL had a very nice 4th quarter. Net income was $0.71 per share and cash flow from ongoing operations was $1.49 per share. The profit sharing agreement with Frontline (FRO) chipped in another $0.22. A dividend was declared of $0.55, where it has been for several quarters. Because of the charter structure and bookkeeping rules of Ship Finance’s fleet the cash flow number is a better indicator of the company’s profitability. The growing cash flow bodes well for future dividend increases. SFL had a busy 2007. Several ships were sold to reduce single hull exposure, or just for nice profits. Others were acquired and placed in service on long term charters. Due to the company’s strong financial position they are able to obtain financing at very favorable rates and re-lease ships at excellent ongoing cash flow. The size and value of the fleet has tripled over the last 4 years, and should grow by another 33% over the next two years. Just this past week, SFL announced that they have entered into an agreement to acquire the new building ultra-deepwater drill-ship West Polaris, from a subsidiary of Seadrill Limited. With a total acquisition cost of approximately $850M, this is a record-breaking sale/leaseback transaction in the maritime industry. The vessel is expected to be delivered end of June 2008 from Samsung Heavy Industries in South Korea, and will be chartered back to the seller for 15 years on a bareboat basis, fully guaranteed by Seadrill.
The strong fundamentals of the offshore industry combined with long term charter coverage and high quality credit counterparts makes this a very attractive industry for anyone to invest in. Ship Finance sees a large potential in providing further flexible solutions to Seadrill as well as assisting other major offshore companies to optimize their capital structure and create flexibility for further growth. Over the last 12 months, Ship Finance has announced new investments of approximately $1.5B, and their fixed-rate charter backlog, excluding profit shares, is currently in excess of $6.6B. This company has the unique combination of very conservative financing to protect cash flow and aggressive growth to increase said cash flow. They do not increase the dividend until they are sure they can maintain it indefinitely. And this is a company whose average charter length is over 13 years, so indefinitely is a pretty long time. With the current yield at nearly 7%, it is hard to see much downside to SFL. Of course the market will hammer the stock when it gets a wild hair about shipping or tanker companies, but that will just be a buying opportunity. It would not be out of the ordinary to consider this stock as an excellent long term investment.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
Ship Finance International Limited, incorporated in October of 2003, is a Bermuda-based shipping company that is engaged primarily in the ownership and operation of vessels and offshore related assets. The Company is also involved in the charter, purchase and sale of assets. Ship Finance operates through subsidiaries and partnerships located in Bermuda, Cyprus, Liberia, Norway, Delaware, Singapore and the Marshall Islands. The Company's assets consist of 33 oil tankers, eight oil bulk ores (OBOs) configured to carry dry-bulk cargo, one dry-bulk carrier, eight container vessels, two jack-up drilling rigs and six offshore supply vessels. Ship Finance's customers include Frontline Ltd (FRO), Horizon Lines Inc. (HRZ), Golden Ocean Group Limited, Seadrill Limited, SCAN Geophysical ASA, Taiwan Maritime Transportation Co. Ltd., Bryggen Shipping & Trading AS, Heung-A Shipping Co. Ltd., Deep Sea Supply Plc and Compania Sud Americana de Vapores. In March 2008, the Company entered into an agreement to acquire two building chemical tankers from Bryggen. In December 2007, Ship Finance agreed the sale of two non-double hull Suezmax tankers. The vessels were delivered in December 2007 and January 2008. In August 2007, the Company entered into an agreement to acquire five offshore supply vessels from Deep Sea. The vessels were delivered in September and October 2007. In November 2007, Ship Finance entered into an agreement to acquire a further two offshore supply vessels from Deep Sea. The vessels were delivered to the Company in January 2008. In January 2007, Ship Finance sold five single-hull Suezmax tankers to Frontline. The vessels were delivered in March 2007. In May 2007, the Company re-chartered the single-hull VLCC Front Vanadis to an unrelated third party. The new charter is in the form of a hire-purchase agreement, where the vessel is chartered to the buyer for a 3.5 year period, with a purchase obligation at the end of the charter.
SFL had a very nice 4th quarter. Net income was $0.71 per share and cash flow from ongoing operations was $1.49 per share. The profit sharing agreement with Frontline (FRO) chipped in another $0.22. A dividend was declared of $0.55, where it has been for several quarters. Because of the charter structure and bookkeeping rules of Ship Finance’s fleet the cash flow number is a better indicator of the company’s profitability. The growing cash flow bodes well for future dividend increases. SFL had a busy 2007. Several ships were sold to reduce single hull exposure, or just for nice profits. Others were acquired and placed in service on long term charters. Due to the company’s strong financial position they are able to obtain financing at very favorable rates and re-lease ships at excellent ongoing cash flow. The size and value of the fleet has tripled over the last 4 years, and should grow by another 33% over the next two years. Just this past week, SFL announced that they have entered into an agreement to acquire the new building ultra-deepwater drill-ship West Polaris, from a subsidiary of Seadrill Limited. With a total acquisition cost of approximately $850M, this is a record-breaking sale/leaseback transaction in the maritime industry. The vessel is expected to be delivered end of June 2008 from Samsung Heavy Industries in South Korea, and will be chartered back to the seller for 15 years on a bareboat basis, fully guaranteed by Seadrill.
The strong fundamentals of the offshore industry combined with long term charter coverage and high quality credit counterparts makes this a very attractive industry for anyone to invest in. Ship Finance sees a large potential in providing further flexible solutions to Seadrill as well as assisting other major offshore companies to optimize their capital structure and create flexibility for further growth. Over the last 12 months, Ship Finance has announced new investments of approximately $1.5B, and their fixed-rate charter backlog, excluding profit shares, is currently in excess of $6.6B. This company has the unique combination of very conservative financing to protect cash flow and aggressive growth to increase said cash flow. They do not increase the dividend until they are sure they can maintain it indefinitely. And this is a company whose average charter length is over 13 years, so indefinitely is a pretty long time. With the current yield at nearly 7%, it is hard to see much downside to SFL. Of course the market will hammer the stock when it gets a wild hair about shipping or tanker companies, but that will just be a buying opportunity. It would not be out of the ordinary to consider this stock as an excellent long term investment.
For more information on the stock and options markets check out the wealth of information at BetterTrades.
posted by BetterTrades Instructor at 4:22 PM
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