Author Topic: SSW - Seaspan  (Read 138786 times)

Myth465

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Re: Seaspan Begins The Year With Promise
« Reply #80 on: October 30, 2010, 09:25:52 AM »
I see no comfort in the steel. When they need to really scrap ships, everyone else will and steel prices will fail quite a bit. Check out OSG. They kept repurchasing below scrap value and then it all evaporated. They ended up issuing a ton of shares at half of what they were buying them back at.


ERICOPOLY

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Re: Seaspan Begins The Year With Promise
« Reply #81 on: October 30, 2010, 10:01:15 AM »
I see no comfort in the steel. When they need to really scrap ships, everyone else will and steel prices will fail quite a bit. Check out OSG. They kept repurchasing below scrap value and then it all evaporated. They ended up issuing a ton of shares at half of what they were buying them back at.

There are a couple of scenarios -- there's the scrap in times of distress (what you are referring to), and then there is the practice of just running the ships for 30 years and then scrapping when they are obsolete.

The question is... will the scrap value retire the debt used to finance the ship?  If not, then what does this "cash distributable to shareholders" really mean?  Does it mean that if entirely paid out we'll just stiff the banks that financed the ships?  Or does it mean that management assumes scrap value will be greater than the debt owed?  Or does it mean that management is exaggerating how much money can be paid out?


Packer16

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Re: Seaspan Begins The Year With Promise
« Reply #82 on: October 30, 2010, 10:01:35 AM »
I just performed an interesting comparison of SSW to other ship leasing firms (primarily in Singapore) - Pacific Shipping Trust, First Shipping Trust and Rickmers Marine.  Pacific Shipping Trust (the closest comp but still not as high quality as SSW) is selling at 11% of distributable CFs.  The other trusts have credit re-negotioation issue more akin to GSL.  If we apply the 11% to SSWs estimated $300m distributable cash flow implies a value of close to $30 per share.   And this is still a higher yield than other income based alternatives like REITs.   Another data point is the proposed IPO of Costamere.  This firm has shorter leases with less creditworthy customers and will be valued must higher than SSW if it goes out at the current IPO range.

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ERICOPOLY

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Re: Seaspan Begins The Year With Promise
« Reply #83 on: October 30, 2010, 10:17:21 AM »
I have trouble comparing SSW to a REIT because you don't scrap an office tower after 30 years.  That's why I'm possessed with this quest to figure out what the terminal value of these ships are.

Assuming zero inflation (to make it simple to understand), with the REIT you'll still have your book value intact after 30 years even if you pay out all the cash flow.  With SSW, you won't -- your scrap value won't be enough to cover the debt, so terminal book value is likely negative.

Therefore, I would assume a REIT should trade at a richer valuation relative to cash flow.

Myth465

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Re: Seaspan Begins The Year With Promise
« Reply #84 on: October 30, 2010, 11:15:03 AM »
Eric and Parker these are really good points, especially the one relating to the REIT comparison. Perhaps pipelines or toll roads (which eventually wear out) is a better comparison. I think if you leave inflation in the equation then scrap value will cover BV 30 years later. Either way you raise a good point, the real question is what is maintenance capex. I believe the maintenance of the ships is in the dry docking expenses but how will they replace these ships when they wear out. Sure its 20 years away but its a good question, and one I dont have the answer to. Wouldnt the debt repayment include some sort of principle portion?
« Last Edit: October 30, 2010, 11:26:09 AM by Myth465 »

Packer16

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Re: Seaspan Begins The Year With Promise
« Reply #85 on: October 30, 2010, 12:17:06 PM »
One way to make the adjsutment to RE is to estimate the CF after debt amortization to pay-off the debt associated with the ships.  If we use the 3Q debt of $2.4b and divide by the avg ship remianing life (27 years) we get $87m or 40% of currnet distributable CF of $200m.  In 2013, SSW will have $300m of dist CF so the net after debt service will be closer to $180 million.  If we cap that by 8% yield on RE, we get a value of $25.  Alternatively if we use the Singapore ship lease distributable CF yield of 13% we get about the same amount ($25).   If there is a lower yield on RE, the value will be higher.  Either way this is showing SSW is about 50% lower than the Singapore comps or the equivalent RE yeild.

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Re: Seaspan Begins The Year With Promise
« Reply #86 on: October 30, 2010, 04:29:46 PM »
One way to make the adjsutment to RE is to estimate the CF after debt amortization to pay-off the debt associated with the ships.  If we use the 3Q debt of $2.4b and divide by the avg ship remianing life (27 years) we get $87m or 40% of currnet distributable CF of $200m.  In 2013, SSW will have $300m of dist CF so the net after debt service will be closer to $180 million.  If we cap that by 8% yield on RE, we get a value of $25.  Alternatively if we use the Singapore ship lease distributable CF yield of 13% we get about the same amount ($25).   If there is a lower yield on RE, the value will be higher.  Either way this is showing SSW is about 50% lower than the Singapore comps or the equivalent RE yeild.

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Regarding $300m distributable cash flows in 2013 -- it's $290m (at least) distributable cash flow in 2012.  Those last 3 ships are delivered in January, March, and April 2012.  Each one produces cash flow of $46,545 per day.  So that's looking like maybe $10m maximum cash flow that they're missing out on in 2012 (vs 2013).  Then on the conference call they indicated that COSCON wants the ships delivered sooner, leaving open the possibility that all ships are delivered by end of 2011.

One thing I think we forgot to include is the cut that management gets when they pay the cash out.  $300m distributable to shareholders -- that's somewhat of a fiction if management is going to take a swipe at it in transit as their bonus.  Perhaps they should rephrase it as "distributable to both shareholders and management".  Does the Singapore company you mention have a similar bonus arrangement?






Packer16

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Re: Seaspan Begins The Year With Promise
« Reply #87 on: October 30, 2010, 05:30:33 PM »
In the conf call, management stated that in 2012 they expect the distributable CF to exceed $300m.  I dont know if that includes some items not included in your estimate.  In the conf call, they also stated diluted effects as increasing over time (I guess assuming the bonus is paid in shares).  Yes the Singapore firms have a similar fee structures paying a certain % of lease income per year with incentive for higher distribution per year.  SSW has a daily fixed fee per vessel plus incentive fee. 

Given your Australian connection, do you have any insights into Village Roadshow Ltd. as they are selling from what I can estimate at about 2.5x FCF (which is pretty cheap for an entertaiment/media firm)?   Thx.

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ERICOPOLY

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Re: Seaspan Begins The Year With Promise
« Reply #88 on: October 30, 2010, 10:07:19 PM »
In the conf call, management stated that in 2012 they expect the distributable CF to exceed $300m.  I dont know if that includes some items not included in your estimate.  In the conf call, they also stated diluted effects as increasing over time (I guess assuming the bonus is paid in shares).  Yes the Singapore firms have a similar fee structures paying a certain % of lease income per year with incentive for higher distribution per year.  SSW has a daily fixed fee per vessel plus incentive fee. 

Thanks for finding this comparison to the Singapore firms.  Useful information.

Given your Australian connection, do you have any insights into Village Roadshow Ltd. as they are selling from what I can estimate at about 2.5x FCF (which is pretty cheap for an entertaiment/media firm)?   Thx.
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No, sorry.


gaf63

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Re: Seaspan Begins The Year With Promise
« Reply #89 on: October 31, 2010, 01:01:14 PM »
As to the cash flow, Sai Chu used the phrase "distributable cash" in the CC, and also states that they wont payout 100% to shareholders, that some will be held for cap ex, no mention of using it for debt repayment however. 
Anyway, a 2/3 payout of cf would be over $2/sh with no dilution beyond the preferred's conversion