I continue to believe that the management team at Ship Finance (NYSE:SFL) is high quality and savvy,
but they do not have the luxury of standing pat with the hand they're
playing. The cash sweeps from the company's renegotiated charter
agreements with Frontline (NYSE:FRO)
have chipped in solid cash flow and give the company exposure to higher
tanker rates in 2015, but those sweeps end after this year and
front-loaded drilling contracts will reduce the cash to be reaped from
the drilling rig assets.
On a positive note, the company has over
$200 million that it can deploy into the vessel market and the company's
comparative "platform neutrality" means that management can look for
value in tankers, containerships, dry bulk, or drilling rigs as the
market dynamics dictate. What's more, the shipping industry is still
seeing a lack of high-quality (and affordable) capital, which should
work in the company's favor.
Today's valuation is arguably fair if
you do not believe that Ship Finance's management can successfully
redeploy that capital into vessels/charters that will earn an attractive
risk-adjusted return. Historically that has not been a good bet to make
and while I can appreciate the appeal of other ideas in shipping like Euronav (NYSE:EURN) and Costamare (NYSE:CMRE),
I think Ship Finance is undervalued and offers an attractive yield for
those investors who prefer to generate their returns from dividends
versus capital appreciation.
Read the complete article here:
Ship Finance Needs To Skillfully Redeploy Capital
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