ATCO - Atlas Corp

[Myth465]

 

I wish I had looked at SSW when all you guys were talking about it a while back.

 

From looking at other posts, sounds like you have done just fine.

 

With that said I am eagerly awaiting JEast's next post.  ;D

[Guest VAL9000]

On one of the conference calls, they claimed that they look for deals were the hurdle rate is 12% (my understanding is that 12% is what they would earn on the deal if no leverage were involved). 

Ok, that makes sense.  I worked up the numbers on the 8k and 13k vessels and got a naive IRR of about 11.5% - but it depends heavily on the value of the ship at the end of the 12 year contract (I assumed 75% of the purchase price).

 

[txlaw]

From looking at other posts, sounds like you have done just fine.

 

Yeah, I'm doing okay.  We shall see what the rest of year holds.

 

With that said I am eagerly awaiting JEast's next post.  ;D

 

Agreed.

[Guest VAL9000]

I can map out where Seaspan goes from 1.25bn to 2.5bn.  I can't see where MSFT goes from 210bn to 420bn.  But maybe I don't have the imagination required.

 

I'm rethinking this thinking.  I can't get MSFT to $420bn in the next couple of years, but I can easily see them moving from 9.x P/E to 13-15 P/E.  I can also see 10% earnings growth per year.  That puts MSFT at ~ 22.75bn earnings / year.  P/E of 13 puts it at $295bn, P/E of 15 puts it at $341bn by 2013.  That's a 20% to 30% annualized return.  Plus it's a great company to own.

 

The return is not as good as what I forecast for SSW over the same time-frame, but less risky due to leverage, industry, etc.  Hmmm...  I feel like I've been doing the dance with MSFT forever.  Might be time to start doing the deed ;)

 

[ERICOPOLY]

I can map out where Seaspan goes from 1.25bn to 2.5bn.  I can't see where MSFT goes from 210bn to 420bn.  But maybe I don't have the imagination required.

 

I'm rethinking this thinking.  I can't get MSFT to $420bn in the next couple of years, but I can easily see them moving from 9.x P/E to 13-15 P/E.  I can also see 10% earnings growth per year.  That puts MSFT at ~ 22.75bn earnings / year.  P/E of 13 puts it at $295bn, P/E of 15 puts it at $341bn by 2013.  That's a 20% to 30% annualized return.  Plus it's a great company to own.

 

The return is not as good as what I forecast for SSW over the same time-frame, but less risky due to leverage, industry, etc.  Hmmm...  I feel like I've been doing the dance with MSFT forever.  Might be time to start doing the deed ;)

 

 

It is the nice girl with a soft body that went on a crash diet.  Val is that "playah" who is cozying up to her, betting the fad diet won't last and the weight will come roaring back.  The value investor dumps the nice girls when that happens, then goes back to the steady diet of cheap and sleazy.  I wonder if men make more successful value investors.

[prunes]

Have any of you looked at Safe Bulkers (SB)? The company is trading at 2x book but 4.5x earnings and pays a 7.7% dividend. The company is more susceptible to the spot market. Currently there are 16 ships with a remaining charter duration of 3.4 years and an average age of 4.1 years. The fleet is expected to grow 76% by 2014. The company is 82% owned by its CEO, whose family has a long history of experience with the shipping industry. Slightly concerning, the company sold 5,000,000 MM shares on April 11. This followed the company's IPO (sold 10,000,000 shares) in June 2008. In all, 71 MM shares exist.

[Uccmal]

Prunes - RE: Safe Bulkers.  This is a different industry than SSW and a different business structure as well.  I have also looked at Genco and Baltic Trading ( a sub of Genco).  The Baltic Dry index is very low right now and SB, Genc, and Baltic Trading all trade to the Baltic dry index.  There is a large oversupply of fleet across the bulk carriers, and there is no indication that the fleet is going to shrink anytime soon.  Precisely the opposite.  I have looked at SB and I am unsure the dividend is safe.  As you mention there may be further stock dilution as well.  I keep a place holder on SB, and Genc (small number of shares).

[menlo]

Hmmmm....

 

Stock price down 30% from the high, while a leasing index is up. 

 

http://www.bloomberg.com/apps/quote?ticker=CTEX2500:IND

[Guest VAL9000]

Looks like we've hit that 5% yield that I didn't think we'd ever see.

[JEast]

I believe the Contex index is just for 2-year leases and is not really applicable to SSW.

 

After the recent run up to $21 we took some off the table (not all), but have been buying those sold shares back today below $15.

 

 

Cheers

JEast

[finetrader]

Which benchmark, index or comparable, do you use then ?

 

I found this site but i'm not a subscriber

 

MODIFY: I forgot the link:

http://www.lloydslist.com/ll/sector/containers/

[Guest VAL9000]

Which benchmark, index or comparable, do you use then ?

When looking at Seaspan, I use this one:

 

http://www.seaspancorp.com/fleet-list.php

 

Daily charter rates for all ships, plus the timeline on their contracts.

 

The impact of the drop in spot rates on Seaspan is that new contracts negotiated today may be need to be more competitively priced.

 

[Guest VAL9000]

Looks like we have a deal:

 

http://www.reuters.com/article/2011/06/09/yangzijiang-contracts-idUSL3E7H91AJ20110609

 

$100mm for 10k TEU ships is really impressive.  The last pricing was $165mm for 13k TEU vessels and $125mm for 8.5k TEU vessels (2007).

 

Now I'd like to learn about the contracts with the liners.  That will probably come soon now that this news has broken.

[Myth465]

Do you think people are confusing Seaspan for other shippers? People are waking up to the fact that dry bulk and oil tankers are doomed. Seems to have been hit pretty hard..

[Guest VAL9000]

Do you think people are confusing Seaspan for other shippers? People are waking up to the fact that dry bulk and oil tankers are doomed. Seems to have been hit pretty hard..

 

I don't think the Seaspan model is very well understood, generally.  They exist somewhere between a REIT and a ship finance company.  It's weird.  Well as they say, if you're the only operator in a particular business, you're either very smart or very stupid.

 

All sectors of shipping are exposed to the same business cycle.  Demand grows, rates rise, everyone profits, everyone orders new vessels, supply swells, rates drop, everyone loses tons of money.  Wash, rinse, repeat.

 

Right now, tankers and dry bulk are in the worst phase of their business cycle.  Containers recently came out of a downturn, but they're struggling to reach escape velocity.  The financing restrictions, drop in trade volume, and influx of ship supply have made for some pretty nasty economics.  It's only because containerized shipping is growing so quickly that we're anywhere near profitability.  If it weren't for the popularity of the global supply chain, we'd be in a much worse position.

 

I'm keeping an eye on tankers.  Some people from the Yahoo board have mentioned NNA as a potential SSW / GSL story to play out in a couple years.  They're more into product tankers (vs. dirty tankers), so it's a niche offering.  After I look, I'll give some thoughts here.

 

[Myth465]

I plan to buy leaps on OSG and FRO, and perhaps NAT at some point. I want to reproduce that Pabrai trade though with leaps. I have been watching for a year or so and owned OSG and OSP for a while in 2007 or so. Its part of why I am anti new ships lol. I think Tankers when they hit bottom will be a great sector to get into. Old ships will be scrapped and a bottom will be reached at some point. Just not sure when....

[Guest VAL9000]

One thing that tankers' economics have going for them is the shift in oil use from the US to developing countries.  Today's oil flow networks are partially designed around how to feed the US as efficiently as possible.  As demand hikes in other countries, the flow will be less efficient, which means your effective supply of tankers reduces and your prices go up.  I'm not sure what the actual impact is, but it's gotta be worth something...

[gaf63]

Very interested in hearing the particulars from SSW , contract terms and with who, amount and terms of credit,

news certainly hasn't generated a positive reaction

[txlaw]

I plan to buy leaps on OSG and FRO, and perhaps NAT at some point. I want to reproduce that Pabrai trade though with leaps. I have been watching for a year or so and owned OSG and OSP for a while in 2007 or so. Its part of why I am anti new ships lol. I think Tankers when they hit bottom will be a great sector to get into. Old ships will be scrapped and a bottom will be reached at some point. Just not sure when....

 

Very interesting, Myth.  I've been following OSG and FRO as well.

 

I don't understand the business well enough, though, to make any decisions.  Any suggestions on where to begin doing research (other than company info)?

[Uccmal]

I was looking for why SSW has been dropping.  Now we know.  The market is figuring the stock will get diluted and the dividend pushed off. 

 

RE: OSG - they have an awesome website for preliminary research on the industry. 

[Guest VAL9000]

I was looking for why SSW has been dropping.  Now we know.  The market is figuring the stock will get diluted and the dividend pushed off. 

They have enough cash and debt capacity today the fund the whole deal.  Maybe the belief is that they are buying these vessels on speculation, as there's no press release yet.  The news seems to have leaked out of the ship builder prematurely.  I can't find mention of this on the Yangzijiang or Seaspan websites.

[txlaw]

RE: OSG - they have an awesome website for preliminary research on the industry. 

 

Thanks, Uccmal.

[Myth465]

I plan to buy leaps on OSG and FRO, and perhaps NAT at some point. I want to reproduce that Pabrai trade though with leaps. I have been watching for a year or so and owned OSG and OSP for a while in 2007 or so. Its part of why I am anti new ships lol. I think Tankers when they hit bottom will be a great sector to get into. Old ships will be scrapped and a bottom will be reached at some point. Just not sure when....

 

Very interesting, Myth.  I've been following OSG and FRO as well.

 

I don't understand the business well enough, though, to make any decisions.  Any suggestions on where to begin doing research (other than company info)?

 

Honestly TX you dont need to know more then what Val posted. It mirrors Pabrai's write up in The Dhando Investor and my experience. The next leg will be increased scrapping and really low rates. At some point things turn and its to the moon again. Everyone then gets excited and orders new ships and .......

 

I have picked up most of my info from OSG investor days and conference call. They are in all the major crude related markets and even in US Flag which is an interesting business. The only caveat is discount their bullishness and never pay any attention to steel value. OSG was trading at a cash flow yield of 25% (it was insanely high) and was buying back every share in sight because it was at a discount to steel value, that proved to be a mistake. If they had paid off debt, they would be sitting pretty.

 

Cash flow is negative, now we just need that capitualation moment. Not sure when it will happen or if its already happen.

[prunes]

I find it hard to evaluate shipping. Pabrai advocated buying companies that were actually producing income.. not so with most shipping companies these days. And it strikes me as imprudent for a leveraged company with negative earnings to be paying dividends based on its lending facility.

 

One company's point of view: ‘Shipping recovery not before 2013' - http://articles.economictimes.indiatimes.com/2011-05-30/news/29598858_1_charter-rates-freight-rates-trade-growth

 

And here is the Chairman of Frontline, John Fredriksen, predicting a "collapse" of the tanker market within the next year or two - http://www.bloomberg.com/news/2011-06-06/frontline-billionaire-fredriksen-bets-tankers-collapsing-freight-markets.html

 

I think it is interesting to see how much buying OSG has had recently though. What other shipping companies are experiencing insider buying? One poster on seekingalpha indicated that Fredriksen had recently acquired a large block of TRMD although I can't verify that personally. He is quoted denying this rumor in this article - http://www.reuters.com/article/2011/03/16/torm-frontline-idUSLDE72F0L220110316

[Myth465]

I think one can take someone too literally.

 

http://greenbackd.com/2010/06/04/pabrai-on-frontline-ltd-usa-nysefro-hawk-template/

 

In this case you would be buying for the turn, the issue is you have to get the turn right. Early can be the same as being wrong. I have been watching since 2009 or so and am still watching, not sure what I am looking for but I know which ones I will buy, just not sure when.

 

---

 

 

We had a 55% return on the Frontline investment and an annualized rate of return of 273%. Frontline is a good example of why I am hesitant to share ideas because we will see this again. Oil tanker rates will go down and at the last meeting a bunch of investors told me, “We are watching now.” The more people that are tuned in, once it gets to $8 or $9, the more the buying – reducing our gains. But that is an example of a Special Situation investment in a company with negative cash flow.