Tuesday, April 7, 2015

Seeking Alpha: Ship Finance Needs To Skillfully Redeploy Capital

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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