On Friday, the 22nd of October, Seaspan (SSW) announced that is has eliminated its requirement for new equity following a sale and leaseback of one of the 13100 TEU ships under contructions and an ammendment to the credit facility for the 400 MUSD UK tax lease ships.
This is a significant change for SSW and I have therefore updated my discounted cash flow model for SSW to establish a new fair value.
On the 27th of July 2010, in this article, I established a fair value of 24 USD per share. At that time the SSW was trading at 10.5. On Friday it closed at 14.16.
The new fair value from the model is 24.75. This comes not only from the elimination of the equity requirement but also from the passing of time as the future cash flows move closer. In the meantime, the contex index has moved from 573 to a peak of 601 on the 14th of September and is now back at 574 and falling. This should therefore pull down the fair value in the coming months but the long term fundamentals remain strong as fewer ships are ordered than what current and reasonable growth warrants leading to a long term supply demand balance. There also remains plenty of upside from the current price so we remain positive on the outlook.
The Q3 earnings call will be on Wednesday and it will be interesting to learn what the prospects are for future dividend increases.
Disclosure: Author is long SSW