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Ship Finance: A Fine Q1 with Good News for the Future

by: Tim Plaehn May 25, 2008 | about stocks: FRO / SFL    
Tim Plaehn

Tim Plaehn

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Ship Finance International Ltd (SFL) came out with their formal 1st quarter earnings and conference call on Thursday. This follows the announcement of a new mega-lease deal and dividend increase announcement a few days earlier. As expected, Ship Finance had a fine quarter with good news for the future.

First up, the dividend: A little different from what I read into the earlier press release, the 1st quarter dividend will be 56¢, up a penny from Q4, and the dividend will be increased to 58¢ in the 3rd quarter. This gives a total increase of 12¢ per year going forward, a 5.5% increase on the current dividend. On the conference call, management indicated they are working toward future increases.

Net cash flow per share came in at $1.96 including 46¢ of profit share and net income of 82¢ for the quarter. The cash flow was up 14% from the 4th quarter of 2007 and shows the effects of the company’s continued growth of its fleet. Also, there is definitely plenty of coverage for the dividend.

Included in the quarter’s earnings was $33.7 million in profit share from Ship Finance’s agreement with Frontline (FRO). This agreement pays SFL 20% of the revenue above a fixed daily rate FRO earns on the 39 tankers FRO has financed through SFL. This amount is over double the profit share earned in the Q4, 2007 and tanker spot rates are higher in Q2 and projected higher for Q3 and Q4.

Ship Finance earmarks the profit share money as capital for ongoing fleet expansion. Over the last 4 years the fleet has grown from a value of $2.1 billion, all oil tankers, to 73 vessels worth $7.0 billion and half in dry bulk, container and off shore. There is currently $1.5 billion of new buy/lease business on order.

I believe Ship Finance offers a great combination of growth, growing income and conservative management. I expect to be holding shares in this company for a long time.

Note: I have a long position in SFL.

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This article has 2 comments:

  •  
    May 25 08:07 PM
    A number of airlines are having their planes fly slower to save fuel.

    Have any of the shipping companies done the same?
    If yes, maybe that's why the spot rate has gone up.

    Ships are taking longer to go from port to port.
    That would instantly create a shortage to some degree.

    Just a guess.
    Reply
  •  
    May 27 02:24 PM
    Here is an interesting weekly write-up from John Mauldin discussing ships and oil.

    www.frontlinethoughts....
    Reply
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