Ship Finance Ltd: Steady and Profitable

Ship Finance Ltd. (SFL) is so far under the radar that the latest earning release and conference call are not listed on either Yahoo Finance or MarketWatch under recent news. These events happened on 2/14, and just today I tracked them down on Ship Finance’s website.

SFL had a very nice 4th quarter. Net income was 71¢ per share and cash flow from ongoing operations was $1.49 per share. The profit sharing agreement with Frontline (FRO) chipped in another 22¢. A dividend was declared of 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 1/3 over the next two years.

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 8% 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. I consider this stock an excellent long term investment.

Disclosure: I have a long position in SFL.

Comments

[Airborn1975:]

I fully agree with your assessment of Ship Finance (SFL). Sometime in March 2008 SFL will be receiving $53 mil from Frontline (73c per SFL share) which is burried under Financing on page 15 of SFL's 22 page report. There appears to be a market faction that cares only about the dividend and or price appreciation thru the ex- dividend date. In the next week or so ... that appears as the most likely suspect in any downdraft of SFL's stock price.

2008 Feb 24 05:31 PM

[Jay King:]

The broader oil & gas marine transport business has not been getting much attention, not just SFL. I think declining earnings and margin trends for the broader sub-sector, both of which peaked during the 2004-2005 timeframe, is a contributing factor.

SFL is highly profitable with 2.5x the average npm t4q of the stocks in this sub-sector. VLCCF and DHT are also good overall performers, and I like (and own) GLNG for a longer term speculative play.

2008 Feb 25 09:21 PM

[Dawson Lodge:]

Nice report Tim, will check out your site. I love this
company too,they are great managers.
I am sure there are a few guys out there building a position buying the dips and hedging on rallies.
You can take this kind of cash flow to the bank and
I'd be doing it myself if I had the capital.
For now those dividends are paying for a lot of
Margaritas!

2008 Feb 26 01:19 AM

[User 156445:]

little known and undiscovered comapny with excellent income for those of us who want income

2008 Feb 26 04:05 PM

[User 156445:]

little known and undiscovered comapny with excellent income for those of us who want income

2008 Feb 26 04:05 PM

[mavv:]

Great article,the shippong sector should start taking off shortly their season is due.

2008 Apr 07 09:50 PM

[ejbNY:]

Own four tanker companies. On this day all are doing very well for income purposes. Have noticed that they all have in common November as dividend payment month. Yields range from 8% to 16%.

2008 Apr 16 10:39 PM