I enjoy ships - particularly cruise ships. Unfortunately, on a pleasure cruise one spends money but I prefer shipping stocks that can generate appreciation and income. Ship Finance International (SFL) is one that I believe can do just that.
Before getting into SFLs metrics, let me say that my investing experience with shipping stocks has been mixed. Several years ago when I first discovered them, daily rates were in an uptrend, eventually approaching all-time highs. These were the good days.
Just a few years later dry bulk rates crumbled, leaving me more than a little miffed with positions in Diana Shipping (DSX) and Eagle Bulk Shipping (EGLE). I managed to escape with only minor losses; however as part of my experience I discovered the Baltic Dry Index, a tool I still use today when exploring dry bulk shipping prospects.
That being said, I have always been a fan of Ship Finance International, having owned it in the past, and more recently (today) re-initiating a small position for the Protected Principal Retirement portfolio.
June 2012 Earnings Call
Let's look at a summary of conference call highlights:
- Diluted earnings of $.77 versus estimates of $.38, this despite a slight quarter over quarter revenue decline
- Declared a dividend of $.39 which was paid in September
- Sold two older ships and restructured their inventory
- Announced that two new dry bulk ships were presently under construction
- Announced that four new container ships would come on line in 2013
- Despite still soft charter rates, SFL has a 10 - year weighted average charter coverage
- As of June 2012, SFL has over $101 million in cash on hand
- Finally, SFL has been in compliance with all financial covenants since it began trading publicly 34 quarters ago
The following is a summation of current financial data (most taken from Yahoo Finance):
- SFL's forward P/e ratio will remain under 10
- The return on stockholders equity is currently 18 percent
- Last quarter's revenues were $61 million, an increase of 13.6 percent
- Earnings for the quarter ending June 2012 increased 47.6 percent
There are also two factors that influenced today's buy of SFL: 1) the involvement of John Fredriksen, and 2) today's secondary offering.
I have previously stated that the portfolio has significant positions in both SeaDrill (SDRL) and North Atlantic Drilling (NATDF), both of which are heavily influenced by Mr. Fredriksen's skilled management philosophy.
John Fredriksen is a Norwegian born oil tanking, shipping and drilling tycoon. Fredriksen has major interests in offshore driller SeaDrill, fish farming companies, oil tankers, dry bulk shippers and offshore energy suppliers. His net worth has been estimated to be in excess of $4 billion dollars. His involvement in Frontline and its connection to SFL tells me that he will probably have a heavy hand in influencing SFL going forward.
Monday, I read where SFL was having a secondary offering of 6 million common shares (here). Even Tuesday's news did not disclose the offering price. After the open, I noticed that the stock dropped into the low $15 range. With an annualized dividend of $1.56, the yield was now just above 10 percent, a price at which I had noted could prove a decent entry point.
Everyone has different criteria (and reasons) for stock purchases - aside from financial metrics I sometimes base my reasoning on the involvement of certain individuals in the background (or foreground), and selecting a point where the yield is in the range that I seek.
While there is no guarantee that the dividend will be sustainable at the present level of $.59/quarter, I like SFLs business mix (oil tankers, dry bulk carriers, chemical tankers, container ships, drilling rigs and offshore supply vessels) and I definitely like the long term prospects for the stock.
Disclosure: I am long SFL.
Additional disclosure: This article does not constitute a buy recommendation on SFL. Readers are urged to do their research before deciding if, indeed SFL has a place in their portfolios.