Just finished the 2Q 2010 SSW earnings call and wanted to share the highlights from my perspective.
As of 2013 they expect to have 300 USD annually in distributable cash flow. This is in line with my model. This is equal to a dividend yield of about 30-35% at current valuations!
They foresee supply and demand to be well balanced going forward with demand rising 10% annually up from an expectation of 5% at the beginning of the year. They expect supply to increase with 5-10%.
There was a lot of talk about (super) slow steaming being here to stay and that many lines order 9 or 10 vessels for strings that previously required 10 vessels. This of cause reduced/reduces supply dramatically.
Management was generally upbeat on the call and there was a rather assertive tone. They will be pursuing growth and see possibilities of banks starting to force defaults on some of the troubled owners as they can now realize attractive valuations on the collateral.
Charter rates for 8500 TEU ships are currently 50.000 USD per day for 2-3 year charters.
The perhaps most important point is that the equity gap has been reduced to 100 MUSD from 140 MUSD. They clarified that the need for this gap is in Q3 2011 when the delivery schedule is rather compressed and that it is for gearing covenants and that they don't need the cash for paying for the ships. After 2012 the gearing will fall rapidly.
They expect the options on the "Express" vessels of 4250 and the Maersk vessels to be exercised as the current market rate is above the option rate. This is as expected.
I have update the model with the reduced required equity amount of 100 MUSD and amended the future rates for ships larger than 4250 TEU due to the information on market rates for 8500 TEU ships. This brings us very close to our neutral valuation target of 23 USD per share. (The majority of this change comes from changing the future rates on +4250 TEU ships).
On a separate note you may have see news saying that SSW missed Wall Street revenue forecasts. Don't put much into that as revenue was exactly as per the charter agreements so it is more of question of poor estimates.
Disclosure: Long SSW