Author Topic: SSW - Seaspan  (Read 141311 times)

prunes

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Re: SSW - Seaspan
« Reply #260 on: June 10, 2011, 10:27:21 PM »
Somewhat off topic:

Diana Shipping (DSX) did a spin off at the beginning of the year of its containership business, Diana Containership (DCIX). Simply put, it was a very unattractive spinoff for most shareholders.

-Market cap at the time of spinoff was around $91 MM
-Distribution ratio of 1:30.7
-DCIX's assets were comprised of cash and two containerships
-DCIX also kicks management fees of around $1.3 MM back to DSX

To make matters worse, DCIX did a secondary IPO this past week, selling 14 MM shares (on 6 MM outstanding) at $7.50. Shares now trade at $7.15. Concurrently, DCIX did a $20 MM private placement of 2.67 MM shares to DSX.

Interestingly, the CEO, Director and President, EVP and Secretary, CFO and Treasurer, collectively agreed to purchase 1.625 MM shares at the IPO price (link). (That there is promise in the spinoff is also demonstrated by DSX's participation in the above private placement.)

More info - http://dollarwisefl.wordpress.com/2011/01/16/diana-containerships-dcix-a-spin-off-with-the-right-kind-of-problems/

More more info - http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/44106

Investor presentation - http://www.sec.gov/Archives/edgar/data/1481241/000091957411000115/d1162153_ex99-1.htm
« Last Edit: June 10, 2011, 11:39:11 PM by prunes »


vinod1

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Re: SSW - Seaspan
« Reply #261 on: June 11, 2011, 06:13:10 PM »
I do not have much experience with Seaspan and wanted to check if my understanding is correct via a simple conceptual model of how this company works. I always think in terms of owner earnings and am trying to visualize Seaspan's owner earnings instead of the distributable cash flow management seems to focus upon.

Assuming a simple model of Seaspan consisting of only a single ship for charter purchased with $100 in total financed with debt/equity of 75/25.

Equity          $25
Debt            $75 (Long term debt is about 55% with about 20% in other long term liability)
---------------------
Assets        $100


Revenue              $10 (~10% of assets)
Op-Expenses       $3   (~30% of revenue)
Interest Ex           $3.5 (Assuming about 6% interest on LTD with other financed at low cost)

Earnings before D&A     $3.5

If we assume that a new ship is needed after 30 years and that a new ship costs increases at about inflation + 1% or about 3x the original price. Since that ship is also financed at 25% equity we need to provide for only that amount. In addition we need to pay off the debt at the end of 30 years.

$300 for new ship ($75 equity) + $75 to pay off old loan = $150 needed after 30 years
Scarp value of ship = 10% of initial cost and grows with inflation ~ $20 after 30 years

Total Outlay needed to replace with a new ship and with a new loan. Essentially start the cycle over again. This is about $130.

If you put about a $1 each year for 30 years in a lock box that grows at about 8%, this gives you the $130 needed to replace ship. Thus $1 is your maintainance Capex. I selected 8% because the $1 is in reality invested by Seaspan and earns about its ROIC.

Thus, Owner's earnings are $2.5 or earning about 10% ROE.

If the above is totally nuts, please let me know! I much rather be wrong than lose capital on an investment I do not understand.

Thanks

Vinod

The fundamental algorithm of life: repeat what works. –Charlie Munger

vinod1

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Re: SSW - Seaspan
« Reply #262 on: June 11, 2011, 06:51:10 PM »
I know there are lots of assumptions and simplifications involved but the depreciation expense is fairly robust at about 1%, +/- 30 bps for a fairly wide range of assumptions on the replacement costs of the ship.

Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger

Uccmal

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Re: SSW - Seaspan
« Reply #263 on: June 12, 2011, 06:49:00 AM »
Vinod, that makes sense to me.  I would probably use 25 years for ship life.  Capex probably rises at a certain point.  This can easily be balanced in your equation by raising the vault to 1.10 per year or so.  It's all in the realm of error. 

When you look at SSWs income statements and clean out the noise from the incoming ships, and the derivative fluctuations, it is a remarkably consistent model.  Now hopefully, it doesn't turn out to be a fraud  ::)
GARP tending toward value

vinod1

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Re: SSW - Seaspan
« Reply #264 on: June 13, 2011, 08:17:25 AM »
Vinod, that makes sense to me.  I would probably use 25 years for ship life.  Capex probably rises at a certain point.  This can easily be balanced in your equation by raising the vault to 1.10 per year or so.  It's all in the realm of error. 

When you look at SSWs income statements and clean out the noise from the incoming ships, and the derivative fluctuations, it is a remarkably consistent model.  Now hopefully, it doesn't turn out to be a fraud  ::)

Thanks!
The fundamental algorithm of life: repeat what works. –Charlie Munger

JEast

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Re: SSW - Seaspan
« Reply #265 on: June 22, 2011, 06:00:35 PM »
No official announcement for SSW, but noticed the following analyst comments that a deal with Hanjin Shipping for several of the newly contracted TEU-10.000 newbuildings and showing some interest in 18,000-teu vessels.

http://www.glgroup.com/News/Seaspan-aiming-for-another-giant-containership-order-54464.html

Recent company presentation:
http://files.shareholder.com/downloads/SSW/1096615012x0x476891/42ac0ab5-5ac0-43ed-b657-2a5a8c10e17a/Presentation%20-%2016-June-2011%20for%20DB%20Conference.pdf


Cheers
JEast

libor.plus1

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Re: SSW - Seaspan
« Reply #266 on: June 29, 2011, 09:14:01 AM »
I read the ABC Funds write-up on these guys. Can someone shine some light as to why their dividends have slipped? and how are they able to support their dividend without NI or FCF?

Uccmal

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Re: SSW - Seaspan
« Reply #267 on: June 29, 2011, 10:20:51 AM »
libor.plus, I wish I had one of those Eidetic memories. 

You probably need to read the most recent AR to get a good feel.  Irwin is a little out of date on his summaries.  He bought the IPO incidentally. 

The dividend was reduced when the financial crisis hit.  They ran into trouble getting financing for the newbuilds and had to conserve cash.

To get a good feel for SSW you need to mentally split it up into the continuing operations and the newbuild, because the newbuild is so significant relative to continuing operations.  The continuing operations are profitable and produce cash. 
GARP tending toward value

Myth465

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Re: SSW - Seaspan
« Reply #268 on: August 01, 2011, 09:31:40 AM »
« Last Edit: August 01, 2011, 09:34:06 AM by Myth465 »

JEast

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Re: SSW - Seaspan
« Reply #269 on: August 01, 2011, 09:51:37 AM »
On a recent trip to Europe, I spoke to an individual well connected in the shipping industry.  However his expertise was more in the bulker business.  Nevertheless and in essence, his comments were that the KGs out of Germany have been in trouble and will stay in trouble.  In addition, European banks have been strong-armed to keep sour shipping loans on the books until 2013.  These loans will or should start clearing probably late next year.  Until then there will be more shakeout in the industry.

On the other hand, even with dire opinion back in the marketplace this individual was quite bullish in the ship purchase market.  Maybe Fairfax is seeing the same thing as well as Seaspan.  I would not worry too much about headline charter rates, as these are always short-term rates of 6-24 month averages and not the 72-120 month charters Seaspan has and will enter into.

As a value investor, one must recognize that shipping is a volatile and a cyclical business.  As such, I took some off the top after the significant run up in Seaspan earlier this year, but am back in at recent prices.


Cheers
JEast