Michael Demaray

Global Ship Lease: A Fairly Valued Stock

Are you using a Free Cash Flow to Firm model with a WACC and backing out residual debt, or are you using a Free Cash Flow to Equity model and using an equity discount rate? If using a FCFE model, are you assuming GSL's intrinsic value is based solely on the current credit facility amendment recently agreed upon, or do you have an upside scenario factored in where the company refinances in the interim (one year, two years, three years from now) and the FCFE shifts?

Sounds like your version is a run-off model and in such a scenario I would not disagree with your conclusions, but if financing markets re-open there is a scenario where GSL starts diverting cash to shareholders much quicker which would significantly change the value of GSL. The run-off scenario which you describe is the second-worst outcome, in my opinion, next to a CMA CGM bankruptcy. A static run-off, however, is not a high-probability scenario as financing markets will certainly re-open, shipping volumes will recover and vessel values will rise. The clincher of course is the timing. I think your conclusions demonstrate that GSL is fairly valued today if it simply lets its current book of business wind-down over time.