Author Topic: SSW - Seaspan  (Read 129886 times)

Uccmal

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3681
Re: SSW - Seaspan
« Reply #420 on: December 08, 2015, 07:39:07 AM »
The shipping industry on the whole could be viewed at its four (4) sub-sector levels by the types of ships in use.  These types of ships are the dry bulk ships (carries coal, corn, iron ore, etc…), oil tankers (just oil here), specialty (mainly chemicals and offshore support vessels), and containers (hauls shoes, TVs, consumer goods).  Each shipping sub-sector has its own set of specific economic dynamics, but 3 of these 4 sub-sectors are all tied to the commodity industry.  As such, the shipping industry as a sector has been hammered and has had selling pressures for most of the year so not surprising that SSW is part of the downdraft.

As owners or potential owners of SSW, we know that they mainly ship TVs, shoes, furniture (consumer goods) for businesses like Wal-Mart , Kohl's, and Target (non-commodity).  As we get back to importing deflation into the US and toss in that bunker costs will be low for 2016, the major liners finances should hold up somewhat and maybe even give a push to get ships off their balance sheets which helps SSW.

The next 6-9 months most likely will remain bumpy along with the overall market.  Plus, SSW will likely have to take a write-down on 15-20 older ships in the first half of 2016 based on the values used in the refinancing deals from several years ago.  Also after Sai Chu’s retirement, they need a new CFO so the market will have to digest these items and we will have to suffer some pain while we wait.  On the other hand, the dividend should be increased 6-9% in March/April and an announcement on a few new contracts should be reported in the next few months.

Cheers

Thanks James. 

Of note: There are four newbuilds coming that are chartered to 2033. 

They certainly need a new CFO to help stabilize the public face.  One thing I do like about this company is the ability to verify the existence of the assets.  This is in comparison to a certain other Chinese company I once owned, that was associated in some way to the China forest industry. 
GARP tending toward value


kab60

  • Hero Member
  • *****
  • Posts: 713
Re: SSW - Seaspan
« Reply #421 on: December 08, 2015, 07:58:46 AM »
I suppose people worry what happens when ships come off lease. Maersk just stacked triple-E ship(s). I like Seaspan, but is it cheap? It's dividend is attractive for income seekers but on a valuation basis it doesn't scream bargain - then again, I might value it the wrong way. I know newbuilds are coming online but TTM EBITDA of 450M versus roughly EV of 4.400M. And then there might be a bit of off balance sheet financing as well?

It is cheap on a book value basis, and certainly on a dividend yield basis, providing what I said above about it not being a long scale pyramid scheme.

In fact, if the business is sustainable, it is beyond insanely cheap.  I have made 64%, lets say 80%,  after compounding, on the dividend alone since I first bought shares in 2009. 

It is the China effect rubbing off on Seaspan.
It's trading at a 20 percent discount to book value. But recently return on equity has been sub 5 percent, so why should it trade higher? I see drybulk shipping companies trading at a 80 percent discount to book value. Sure, they're not making money at moment, and I much prefer Seaspan, it's just that I have a hard time getting the numbers to add up. That plus 10 percent dividend yield looks very attractive, but what if it was cut - would it still be cheap? Obviously whether it pays dividends or not shouldn't change ones value of the company since retained earnings (at least in theory) are just as "good" are earnings payed out. I'm just wondering if we'd consider it cheap without the dividend.

JEast

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 735
Re: SSW - Seaspan
« Reply #422 on: December 09, 2015, 11:24:39 AM »
The JV with the Carlyle Group called Greater China Intermodal Investments was a five (5) year deal that expires next year and appears to have worked well.  The item I like best (besides having a great partner) is that it allowed SSW to expand their ship management business, plus it allows SSW to buy any ship if Carlyle wants to sell their assets.  Not really a big item in the numbers now, but if the company can expand the ship management side of the business then the increased entropy of the company adds a new dimension not captured by most today.

Reference:
Greater China Intermodal Investments

The point about dividends is a natural comment for the casual investor as reaching for yield is generally not a good idea.  However, most folks do not recognize that this equity is basically a REIT (i.e. Ship Asset Investment Trust or SAIT).  Much like a REIT, the cashflow can not always be invested back into the company in the timeframe one wants so might as well be tax efficient with the cash.  In SSW’s case, the dividend is actually deemed as ‘return of capital’ so it is 'tax-free' to the recipient until the asset is sold. At least a small nuance to be considered.

kab60

  • Hero Member
  • *****
  • Posts: 713
Re: SSW - Seaspan
« Reply #423 on: December 09, 2015, 12:18:46 PM »
Good points but how do you value this and figure out it is cheap?

watsa_is_a_randian_hero

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 785
Re: SSW - Seaspan
« Reply #424 on: December 12, 2015, 10:16:35 AM »
Anybody look at SSWN?  This is senior debt due in Apr 2019 currently priced at 11.3% YTM.  Thats up from 7.4% just a couple weeks ago.  I hope they are buying back a ton on the open market right now!

BG2008

  • Hero Member
  • *****
  • Posts: 732
Re: SSW - Seaspan
« Reply #425 on: December 12, 2015, 11:50:44 AM »
Anybody look at SSWN?  This is senior debt due in Apr 2019 currently priced at 11.3% YTM.  Thats up from 7.4% just a couple weeks ago.  I hope they are buying back a ton on the open market right now!

This is interesting.  Trading at around $20 on $25 par.  I just did a quick look at exchange traded debentures such as Seaspan 2019.  Most of them lose 20% during late 2014.  Are there any good reason for such move late last year?  Just trying to figure why they all uniformly dropped last year. 

Uccmal

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3681
Re: SSW - Seaspan
« Reply #426 on: December 12, 2015, 01:58:42 PM »
I suppose people worry what happens when ships come off lease. Maersk just stacked triple-E ship(s). I like Seaspan, but is it cheap? It's dividend is attractive for income seekers but on a valuation basis it doesn't scream bargain - then again, I might value it the wrong way. I know newbuilds are coming online but TTM EBITDA of 450M versus roughly EV of 4.400M. And then there might be a bit of off balance sheet financing as well?

It is cheap on a book value basis, and certainly on a dividend yield basis, providing what I said above about it not being a long scale pyramid scheme.

In fact, if the business is sustainable, it is beyond insanely cheap.  I have made 64%, lets say 80%,  after compounding, on the dividend alone since I first bought shares in 2009. 

It is the China effect rubbing off on Seaspan.
It's trading at a 20 percent discount to book value. But recently return on equity has been sub 5 percent, so why should it trade higher? I see drybulk shipping companies trading at a 80 percent discount to book value. Sure, they're not making money at moment, and I much prefer Seaspan, it's just that I have a hard time getting the numbers to add up. That plus 10 percent dividend yield looks very attractive, but what if it was cut - would it still be cheap? Obviously whether it pays dividends or not shouldn't change ones value of the company since retained earnings (at least in theory) are just as "good" are earnings payed out. I'm just wondering if we'd consider it cheap without the dividend.

Okay, I have held SSW since December 2008 - 7 years.  I have bought more as we have gone along.  Until recently it made up 30% of my total holdings by dollar value.  Every year they have raised the dividend.  It is a priority.  I expect them to raise the dividend by 8% again this year.  To me that is a very good value, in an era when treasuries are paying nothing. 

The proviso is that they can handle the aging ships without significant end of lease capital losses.  Significant late in lease costs would indicate it is something of a very long term Ponzi scheme.  But, Management is good, and the BOD and management are heavily invested in seeing this work properly. 
This is in fact the only reason I haven't gone even higher in my position. 

In today's sideways market there is simply no where else to get returns of 8-10 %.  As Jeast has indicated reaching for yield can often be a bad thing, but I too dont see this as particularly dangerous with SSW.  It my be as simple as the market and analysts dont understand the company, and its lack of leverage to shipping in general. 

GARP tending toward value

BG2008

  • Hero Member
  • *****
  • Posts: 732
Re: SSW - Seaspan
« Reply #427 on: December 13, 2015, 06:52:02 PM »
My concerns about Seaspan

1.  The dividends are a return of capital, not a return on capital.  The difference between a REIT and container ships is that they both throw off a cashflow stream over time.  If you own the right kind of RE, the terminal value is worth substantially more than the debt that you put on those properties despite all sorts of GAAP depreciation.  This doesn't mean that you aren't earning a "true" return by Seaspan.  But one needs to look at the business from a life cycle perspective of purchasing ships at X, financing the purchase at Y% WACC, and whether salvage value is higher than depreciated cost.  I think that one needs to look at this over many years and if you can't answer this question then you could very well be in a pyramid scheme and not know it. 

2. 5 year average lease term.  Frankly, this worries me as I prefer to see portfolio lease terms that approach 8-10 years.  If December 2015 is the beginning of the burst of the credit bubble, then it could be quite painful as the leases roll off and the market can't absorb the excess capacity.  In the 20-F, they mentioned that the backlog is something like 18% of the worldwide TEU capacity during 2014.  That's kind of scary.  This leads me to my next point, container rates. 

3.  No one has mentioned anything about spot shipping rates.  They've falling off significantly.  Now you can say that SSW has long term leases.  But do they?  When the average lease length is 5 years, it's hard to claim that. 

https://ycharts.com/indicators/container_shipping_rate_for_4250_teu_vessels
http://www.maerskline.com/en-ca/shipping-services/rates-and-pricing
http://wolfstreet.com/2015/06/22/container-shipping-rates-from-china-to-the-us-europe-totally-collapse-ccfi-scfi/

4.  Just trying to be creative in imagining what could go wrong.  If SSW can't induce shippers to enter into more long term contracts.  The average lease length can quickly go from 5 years to 3 years.  At that point, SSW is in essence in the spot market.  From my experience, you never want to be a spot market shipper.   

5. Does anyone know what happened to SSW from 2007 to 2009.  There was a 70-80% loss in share price.  Also, distribution per share collapsed from 47.5 cents per quarter to 10 cents a quarter and have not recovered back to 47.5.  I don't know if we are going into a 2009.  But I stress test my investment under those kind of scenarios.   


JEast

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 735
Re: SSW - Seaspan
« Reply #428 on: December 14, 2015, 09:34:55 AM »
Yes, risk is present in this equity.  If you already own it, more selling pressure will probably persist so the question is can you tolerate the pain until the tide turns?  Always a tough call but also gives one the potential opportunity.  As one of this board’s heroes indicates – this investing stuff is not supposed to be easy.  Put my comments in the camp of daring to look foolish.

#1 – Valid point about a potential appreciating asset versus a depreciating asset and return of capital.  I used the REIT analogy as potential investors are more familiar with REITs more so than the aircraft leasing model where you do have a depreciating asset with an ending salvage value (i.e. AIG’s previous International Lease Finance Corp.).  For the most part, with either aircraft or ships they are depreciated over a 25-year life and are useful for about 30 years.

#2 – As a company in this space grows larger, just the mathematics of the business forces the average lease term to shrink since you are looking for 8-12 year leases that are only booked over the cycle.  However, that does not imply that the cashflow will shrink because of the overall shorter lease term relative to earlier years.

#3 – Spot rates have come down considerably and the reason SSW will most likely see an asset impairment in the 2nd quarter of 2016, or earlier.  Spot rates obviously play a roll when parties enter into a 10-year deal, but both parties are looking at more than just 6-12 month rates alone.

#4 – SSW does not have to enter into deals that are not rewarding.  If there are no long-term deals available, just sit and run the business until a deal arrives.  The biggest risk is counter party risk of not paying leases.  However and due to maritime law, in essence the ship owner has ownership of all cargo until the ship enters port.  For reference, the cargo is worth 10X or more than the lease payment and partially the reason no lease payment has lapsed in the company’s history – at least to my knowledge.  Side note: shipping has many very unique aspects to it across all the shipping sectors.  For example, in the oil tanker business you never want to have leases but instead always want to be in the spot market (counter intuitive).

#5 – In ’07-’09 there was a liquidity crisis as many will recall and the thought at the time was that many counter parties would not pay their bills (or in SSW’s case, pay their leases).  During this timeframe, the bulk of SSW’s counter party risk was indirectly tied to the Chinese government and I had a belief then that the Chinese government would not want to default on leases which turned out to be correct.  (Will this continue?)  Anyway, SSW cut the dividend back then just in case and to build cash levels to fund growth as they did not know if their bankers would be around or even survive.  As such, the funding avenues for SSW’s growth have expanded considerably over the last six years as they have done a number of different types of financing deals versus just based on the banks.


Uccmal

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3681
Re: SSW - Seaspan
« Reply #429 on: December 21, 2015, 07:26:55 AM »
As an aside.  Why the sudden onset of analyst coverage of SSW?  This is partly why the stock is down.  WFC, and JPM have both initiated negative coverage on SSW, for the first time.  It was ignored by the major investment firms before.
GARP tending toward value