Seaspan: Full Speed Ahead - Barron's

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Smooth Sailing by Kopin Tan

Summary: Growth and value play Seaspan (SSW) is a container ship-leasing company with a 6% dividend yield and significant exposure to China, which accounts for 1/3 of the global shipping trade. The first to lease ships, Seaspan has expanded its fleet of 55 ships worth $3.9 billion, from 23 ships, worth $1.5b, at its 2005 IPO. Seaspan anticipates 100 ships at a $7b-$10b value by 2010 through 1) Its geographically expanded client base, to hedge against China's frothy market. 2) Its sharp management, which orders new ships after pre-signing, steady-yield leasing agreements and arranging staggered contract renewals, which allows safe expansion and hedging against the cyclicality of the shipping trade. 3) Its younger fleet to rivals like Danaos (DAC) and lower debt-to-capital ratio of 50% vs. the industry norm of 70% along with its general conservative financial management will enable greater access to credit for expansion and protection against overheated markets. 4) Seaspan's 49% share rise this year pales next to rival Dryships' (DRYS) 262% rise, but its lower name recognition gives it more upside potential. Bulls expect global trade expansion to allow a 10% dividend hike in both 2009 and 2010, making rising bond yields less tempting. Shares should rise 15% to $36 from the current $31.62.

Related Links: The Global Shipping Industry: Not Such a Small World After All • A Tale of Two Tankers: Seaspan or Knightsbridge? • Seaspan: Undervalued, High-Yield Chinese Shipper

SSW 1-yr. chart:

Comments

[long term s...:]

SSW's current expansion strategy appears to be very promising given global trades remain robust in the next 5 to 7 years. However, if there is a gradual slow down in global economy and the supply of container vessels exceeds demand, will some of SSW's clients still be able to honour their long term commitments
under leasing agreements?

2007 Jul 02 08:02 PM