All You Need To Know About Ship Finance Second-Quarter Results.

| About: Ship Finance (SFL)

Summary

Ship Finance International released its 2Q'16 results on August 31, 2016. Another solid quarter with operating revenues of $113.991 million.

The Board has declared a quarterly cash dividend of $0.45 per share for the quarter or 12.13% on yearly basis. This is the 50th consecutive dividend.

I recommend SFL as a long-term investment.

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Source: worldmaritimenews.com

Ship Finance International (NYSE:SFL)

This article is an update of my preceding article on SFL published on June 1, 2016 about the 1Q'16 results.

Complete and most recent fleet analysis as of August 2016:

1 - Crude oil tankers (VLCC and Suezmax)

# Vessel: Oil Tankers Nature of contract

Year

built

Flag
a) Oil tankers: Suezmax
1 Front Ardenne Frontline (T/C) 1997 MI
2 Front Brabant 1998 MI
3 Glorycrown Short-term 2009 MI
4 Everbright 2010
b) Oil tankers: VLCC (Very Large Crude Carriers)
1 Front Century Frontline (T/C) 1998 MI
2 Front Circassia 1999
3 Front Scilla 2000
4 Front Ariake 2001 BS
5 Front Falcon 2002
6 Front Page 2002 LIB
7 Front Serenade 2002
8 Front Stratus 2002
9 Front Hakata 2002 LoM
10 Front Force 2004 Cyprus
11 Front Energy 2004
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T/C : Time charter

Note: The company's VLCC and Suezmax tankers are chartered to Frontline Ltd. (NYSE:FRO) and Frontline Shipping II Ltd. on a long-term contract with a fixed rate from 4 to 13 years. From the conference call, M. Ole Hjertaker, CEO, said:

And in addition, we also have the dividend potential from our $11 million Frontline shares with a dividend payout of $2.2 million due in the third quarter alone based on the $0.20 dividend announced today. In total, we will then have received more than $13 million in cash dividends from Frontline the last 12 months.

2 - Dry Bulks

# Vessel: Dry Bulks

Nature of contract

(Chartered to)

Year

built

Flag
1 SFL Tyne Western bulk 2012 HK
2 SFL Clyde 2012
3 SFL Dee 2013
4 SFL Spey Short-term (T/C) 2011
5 SFL Medway 2012
6 SFL Kent 2012
7 SFL Trent 2012
8 SFL Hudson Glovis (T/C) 2009
9 SFL Yukon 2010
10 SFL Sara 2011
11 SFL Kate 2011
12 SFL Humber 2012
13 Sinochart Beijing Sinochart 2012
14 Min Sheng 1 2012
15 Golden Magnum Golden Ocean (T/C) 2009
16 Battersea 2009
17 Belgravia 2009
18 Golden Zheijang 2010
19 Golden Future 2010
20 Golden Beijing 2010
21 Golden Zhoushan 2011
22 KSL China 2013
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3 - Containers

# Vessel: Containers

Nature of contract

(Chartered to)

Year

built

Flag
1 Green Ace Heung-A (B/B) 2005 Malta
2 Heung-A Green 2005
3 SFL Europa Short term (T/C) 2003 MI
4 SFL Avon 2010
5 SFL Tagus 2016
6 SFL Tiber 2017
7 MSC Vaishnavi R. MSC (B/B) 2002 LIB
8 MSC Julia R. 2002
9 MSC Arushi R. 2002
10 MSC Anisha 2002
11 MSC Katya 2002
12 MSC Zlata 2002
13 MSC Vidhi 2002
14 MSC Margarita 2001
15 MSC Vidisha 2002
16 San Felipe (T/C) Hamburg Süd 2014 MI
17 San Felix 2014
18 San Fernando 2015
19 San Francisca 2015
20 Maersk Sarat 2015
21 Maersk Shivling 2016
22 Maersk Skarstind 2016
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From the conference call M. Harald Gurvin said:

We have now taken delivery of all three container vessels to Maersk Line. The last vessel was delivered in May and we will have full cash flow effect in the third quarter. The charter period is five-year fixed plus two optional years and we estimate average EBITDA from these vessels to more than $32 million per year after all vessels [indiscernible] have been delivered.

4 - Offshore drilling and supply

# Vessel: Offshore drilling and supply Nature of contract

Year

built

Flag
1 Semi-submersible: West Taurus Seadrill (B/B) 2008 Panama
2 Semi-sub: West Hercules 2008
3 Jackup: West Linus NADL (B/B) 2014 Norway
4 Jackup: Soehanah Apexindo (B/B) 2007 Panama
5 PSV Sea Pike - PSV Deep sea supply (B/B) 2007 Cyprus
6 PSV Sea Halibut - PSV 2007
7 AHTS Sea Leopard - AHTS 1998
8 AHTS Sea Cheetah - AHTS 2007
9 AHTS Sea Jaguar - AHTS 2007
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5 - Chemical and Car Carriers

# Vessel: Containers

Nature of contract

(Chartered to)

Year

built

Flag
a) Chemical Carriers
1 Maria Victoria V Sinochem (B/B) 2008 Panama
2 SC Guangzhou
b) Car Carriers
1 Glovis Conductor Glovis (T/C) 2006 Panama
2 Glovis Composer 2005 HK
c) Product Tanker
1 SFL Sabine Phillips66 2017 UK?
2 SFL Trinity 2017 UK?
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The 2 vessels have been chartered out on time charter basis for a period of seven to 12 years to Philip 66. The exact period will be set later this year but the minimum period represents a backlog of approximately $113 million.

Backlog: SFL increased to $4.0 billion in 2Q'16.

M. Ole Hjertaker, CEO, said in the conference call:

We have a $4 billion fixed-rate order backlog after our recent acquisitions.

Second-quarter 2016 results snapshot

Presentation 2Q'16 click here.

Conference call transcript from Seeking Alpha, click here.

Q2 '16 Q1'16 Q4'15 Q3'15 Q2'15 Q1'15 Q4'14

Q3'14

Q2 2014

Charter Operating revenues

in $ million

113.991 117.583 113.914 110.712 92.03 90.09 88.66 83.17 72.99

EBITDA

in $ million

128.0 139.47 141.97 135.51 125.0 127.14 148.8 146.0 128.9

Net income

in $ million

38.812 46.799 54.293 45.49 67.94 33.11 45.486 34.59 22.36

EPS

in $

0.42 0.50 0.58 0.49 0.73 0.35 0.27 0.37 0.24

Long-term debt (interest-bearing)

in $ billion

1.5471 1.506 1.4584 1.562 1.259 1.331 1.550 1.46 1.33

Dividend per share

$

0.45 0.45 0.45 0.45 0.44 0.43 0.42 0.41 0.41

Vessel impairment charge

$ million

0 0 13.249 0 29.16 0 11.8 - -

Cash on hand

$ million

82.016 84.426 70.175 60.28 61.57 49.73 50.818 32.62 49.48

Shares outstanding

in million

93.505 93.505 93.468 93.468 93.468 93.413 93.404 93.394 93.359
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Liquidity 2Q'16 in the conference call m. Harald Gurvin said:

we showed $82 million of consolidated cash at the end of the quarter, excluding amounts freely available for drawdown under revolving facilities available-for-sale securities of $120 million includes investment in senior secured bonds with a fair value of $33 million at quarter-end and also our 11 million shares in Frontline.

Commentary:

Ship Finance International released its 2Q'16 results on August 31, 2016. Another solid quarter with operating revenues of $113.991 million down slightly 3.05% quarter over quarter. To highlight the financial strength of the company, M. Harald Gurvin, CFO, said in the conference call:

The Company has no bank or bond maturities until the fourth quarter 2017, while we continue our scheduled debt amortization of close to $50 million per quarter and we're in compliance with all financial covenants under our loan agreement at quarter-end. It is worth noting that not only has Ship Finance been profitable and paid dividends each of the 50 quarters since the Company was established, we have also been in full compliance with all financial covenants on our loan agreement which gives us a very strong standing in the bank market.

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Yes, it is tiring to cover a successful company who is paying over 12% dividend and has a good future prospect, right?

This type of companies is not what people liked to talk about. SFL is a boring successful money making company and it is really the bottom line for long term investors.

On the credit front SFL is solid and have extra-leverage to expand at low cost. However, I really liked the words of caution from M. Ole Hjertaker, CEO, about the Hanjin bankruptcy and the liners.

We have refrained from doing long term charters with those entities simply because of the risk of this happening.

Also, M. Ole Hjertaker, mentioned Seadrill but did not offer any new news in the conference call.

Seadrill has announced that they are in a dialogue with the banks and other stakeholders in order to negotiate a broader package of measures to improve liquidity and bridge them to a recovery in the market. This is expected to take some time to complete and they guide towards the end of the year. We cannot of course comment on this process,

Finally, SFL announced an adjusted neutral agreement with Deep Sea Supply -- From the presentation.

• 5 vessels on charter since 2007/2008

• Temporarily reduced charter rates until May 2018, in exchange for: 1 - 3 year extension of charter = $21m net increase in backlog; 2 - Optionality through new 50% profit share above base rates Charter; 3 - guarantee from stronger entity.

• Net distributable cash flow remains unaffected

Conclusion:

SFL is reporting a substantial backlog of $4 billion, that should please and reassure investors for the long-term outlook. This security level, which is about 8 to 10 years of operating revenues is sustaining the actual dividend payment, which is what the street finds appealing.

Most of the SFL fleet is chartered out on a long-term basis, at a fixed rate, that translates to a stable stream of revenues and predictable earnings.

Long-term debt is $1.54 billion, with a ratio, net debt to EBITDA at around x2. 7, which is excellent and give an extra bonus to the company that can take care of opportunities when they arise, using an easy financing.

However, the real strength of the company is that it is involved in a wide range of shipping activities with a strong oil tankers' segment.

SFL has been trading in a short range since June, and I expect this trend to remain constant until the end of 2016. An important support is the 200MA at $14.24. I recommend to accumulate SFL on any weakness such as what SFL experienced in February.

One last comment is about the 11 million shares of FRO that SFL owns. I would prefer to see SFL to sell its stake on any strength. I believe the company missed a good chance to sell its stake at $10 recently.

Important note: Do not forget to follow me on SFL and the oil sector. Thank you.

Disclosure: I am/we are long SFL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.