ATCO - Atlas Corp

[meiroy]

 

50 % of their clientele is two Chinese shipping companies. This looks risky because its China, but it isn't really risky.  One of the Chinese companies tried to pay SSW less per ship during the recession but Gerry held firm. 

 

Could you clarify how this isn't really risky? The China situation is only starting and their successful adjustment is anything but guaranteed. Slowdown is inevitable and impact on anyone who relied on their over-investment is inevitable.

 

I do not know anything about this company, thank you for writing about it, but just this sentence makes me take two steps back thinking: 1.  Is China's over-investment/oversupply the reason for this company's growth or survival? 2. Now that China economy has to adjust, what is the impact?

 

[Uccmal]

 

50 % of their clientele is two Chinese shipping companies. This looks risky because its China, but it isn't really risky.  One of the Chinese companies tried to pay SSW less per ship during the recession but Gerry held firm. 

 

Could you clarify how this isn't really risky? The China situation is only starting and their successful adjustment is anything but guaranteed. Slowdown is inevitable and impact on anyone who relied on their over-investment is inevitable.

 

I do not know anything about this company, thank you for writing about it, but just this sentence makes me take two steps back thinking: 1.  Is China's over-investment/oversupply the reason for this company's growth or survival? 2. Now that China economy has to adjust, what is the impact?

 

 

This precise misunderstanding is why SSW is trading down.  Unless China completely breaks all rules of contract law I dont see any problem.  And if they start doing that the world is going to hell real quick. 

 

Before investing read the financials!

[Hawks]

meiroy

Listen to what uccmal is saying and his analysis over the years. And yeah, read the financials. Bought lots of SSW during last weeks turmoil.

[Packer16]

The Chinese counterparties to most of the leases are rated AA.  If you look at Seaspan's customer list you will find some of the most creditworthy shipping companies in the business.

 

Packer

[argonaut]

Hi Uccmal,

 

Just a quick thought. Have you considered SFL? Somewhat higher div (over 10% last week) and last week traded just above $15 per share.

 

Cheers,

 

Argonaut

[meiroy]

 

50 % of their clientele is two Chinese shipping companies. This looks risky because its China, but it isn't really risky.  One of the Chinese companies tried to pay SSW less per ship during the recession but Gerry held firm. 

 

Could you clarify how this isn't really risky? The China situation is only starting and their successful adjustment is anything but guaranteed. Slowdown is inevitable and impact on anyone who relied on their over-investment is inevitable.

 

I do not know anything about this company, thank you for writing about it, but just this sentence makes me take two steps back thinking: 1.  Is China's over-investment/oversupply the reason for this company's growth or survival? 2. Now that China economy has to adjust, what is the impact?

 

 

This precise misunderstanding is why SSW is trading down.  Unless China completely breaks all rules of contract law I dont see any problem.  And if they start doing that the world is going to hell real quick. 

 

Before investing read the financials!

 

The fact that, as you say, "50 % of their clientele is two Chinese shipping companies. " means that for me this does not pass qualitatively.  At a minimum this would require a significant discount.

 

I also don't see how a change of relationship between these two clients and a company would mean that " the world is going to hell real quick. ".  China is not even a net contributor to global economy but we won't get into that.

 

It also beyond me how someone could give AA credit ratings to companies where their audit working papers are a state secret and the country of origin itself is not based on the rule of law.

 

As I said I do not know the specifics but will not spend time on it as qualitatively it does not pass. Just a personal preference and we each have our own.

 

[Uccmal]

Hi Uccmal,

 

Just a quick thought. Have you considered SFL? Somewhat higher div (over 10% last week) and last week traded just above $15 per share.

 

Cheers,

 

Argonaut

 

I had never heard of this company until now.  I did a huge amount of work on shippers in 2010 or so, including OSG?,  dry bulk, Diana, and others but never came across SFL.  Will have a bit more detailed look.  Probably one well run ship lease co. is enough in a portfolio.  There are always risks, of course.

[Uccmal]

 

50 % of their clientele is two Chinese shipping companies. This looks risky because its China, but it isn't really risky.  One of the Chinese companies tried to pay SSW less per ship during the recession but Gerry held firm. 

 

Could you clarify how this isn't really risky? The China situation is only starting and their successful adjustment is anything but guaranteed. Slowdown is inevitable and impact on anyone who relied on their over-investment is inevitable.

 

I do not know anything about this company, thank you for writing about it, but just this sentence makes me take two steps back thinking: 1.  Is China's over-investment/oversupply the reason for this company's growth or survival? 2. Now that China economy has to adjust, what is the impact?

 

 

This precise misunderstanding is why SSW is trading down.  Unless China completely breaks all rules of contract law I dont see any problem.  And if they start doing that the world is going to hell real quick. 

 

Before investing read the financials!

 

The fact that, as you say, "50 % of their clientele is two Chinese shipping companies. " means that for me this does not pass qualitatively.  At a minimum this would require a significant discount.

 

I also don't see how a change of relationship between these two clients and a company would mean that " the world is going to hell real quick. ".  China is not even a net contributor to global economy but we won't get into that.

 

It also beyond me how someone could give AA credit ratings to companies where their audit working papers are a state secret and the country of origin itself is not based on the rule of law.

 

As I said I do not know the specifics but will not spend time on it as qualitatively it does not pass. Just a personal preference and we each have our own.

 

 

Fine by me. 

[crocodon]

1. Found these thoughts on fast steaming interesting: http://www.joc.com/maritime-news/falling-bunker-price-gets-industry-talking-about-speeding-ships_20141103.html

 

2. Does anyone have information on how low bunker prices affect resale values for cargo vessels?

[JEast]

Bunker costs are roughly 30-40% of operational costs for liners.  So yes, lower bunker costs have the potential for liners to go back to the faster routes.  However, I am of the belief that most major liners like the slower steaming but will selectively take a ship out of a route for the right price or customer demand.

 

As for the value of the assets, lower bunker costs will help the much older short-haul vessels to survive a little longer before being sold into the scrape markets.  The biggest influence on asset prices are scrape rates and customer demand more so than bunker costs.

[xtreeq]

Seaspan reported the MOL Express, a 4,600 TEU container vessel went aground in Tateyama Harbour, Japan on January 11, 2015. The company said all preliminary reports indicate the hull is in a stable condition, and no environmental damage has occurred. There were no reported crew injuries. Seaspan and MOL, with the assistance of salvage experts, are working on refloating the vessel.

 

http://www.nasdaq.com/article/seaspan-mol-express-vessel-in-stable-condition--quick-facts-20150113-00008

[JEast]

As a small obligation as the originator of this thread, a couple of comments are as follows. 

 

SSW continues to be the gold standard in the ship leasing business.  Connected exclusively to the container ship industry (not to be confused with dry bulk), they also provide the most stable sector in the shipping industry.  The growth opportunities for SSW are still open as they continue to fulfill their promises.  Given the weakness in the ‘shipping’ industry overall, Seaspan looks to be a high quality growth opportunity for the more conservative investor.  For the long-term investor with a view of 3-4 years, opportunities for prices below $18 look attractive.

 

 

Cheers

JEast

[xtreeq]

Agreed,

Results were boring (in a good way) as usual

 

[obtuse_investor]

I am pondering what all the sellers today (at a 52 week low of 14.25/shr) are thinking.

 

[*]Are they worried that SSW would not be able to retain the large dividend in 2016 and are pricing that in?

 

[*]Are they assuming that the high leverage that SSW has is going to cause trouble as China slows?

 

[*]Are they thinking that the [potential] FED rate hike off of zero bound is going to make these high yielding companies less attractive (much like the midstream MLPs)?

 

[*]Or is it something else altogether that I can't imagine right now?

 

... I was obliged to take some shares off those sellers today. Looking forward to do that more.

 

 

[Uccmal]

I am pondering what all the sellers today (at a 52 week low of 14.25/shr) are thinking.

 

[*]Are they worried that SSW would not be able to retain the large dividend in 2016 and are pricing that in?

 

[*]Are they assuming that the high leverage that SSW has is going to cause trouble as China slows?

 

[*]Are they thinking that the [potential] FED rate hike off of zero bound is going to make these high yielding companies less attractive (much like the midstream MLPs)?

 

[*]Or is it something else altogether that I can't imagine right now?

 

... I was obliged to take some shares off those sellers today. Looking forward to do that more.

 

I cant figure this out so I gave up trying.  They have continuously added ships with long lease dates.  They are leased out to 2028 on some of the newest and biggest ships.  The stock is trading as if the slow down in the China trade makes a difference to Seaspan.  Gerry Wang indicated that maintenance costs would rise as the fleet ages but that shouldn't significantly affect the dividend IMO - we are talking ships floating on a soft surface with relatively stable temperatures that dont stop and start all day long, unlike jets, or automobiles.  These ships should be good to go for double their leases, at least. 

 

Last year the dividend increase was ~8%.  I would think that is sustainable for now.  What I am waiting to see is if some of the ships coming off lease are sold or re-leased at good rates.  It Could be what other investors are waiting to see.  It will make the difference between SSW being a long duration pyramid scheme, and a viable perpetual business model.  In the meantime I have made $6.40 in cash on the first shares I bought. 

[Hawks]

Thank you Mr Market. I added further to my position.

[kab60]

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? Its 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?

[Uccmal]

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. 

[buylowersellhigh]

My only concern is the really the recent departure of the CFO.

[JEast]

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

[Uccmal]

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. 

 

[kab60]

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]

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]

Good points but how do you value this and figure out it is cheap?

[watsa_is_a_randian_hero]

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!