ATCO - Atlas Corp

[JEast]

gaf63,

 

Glad to have helped. To paraphrase Buffet, there are times when you should use a bucket and not a thimble. Though I was bullish 15+ months ago, I just used 'two' thimbles instead of the bucket. Irrespective of this fact, Seaspan is not super cheap presently, but still has a reasonable margin of safety and the future is starting to clear. In addition, the big cash flow is starting as the big ships are being delivered this year.

 

There are other more cheaply priced companies in the market that should bring more capital appreciation potential, but none are as solid or have the balance sheet and relationships, which I am of the belief that Seaspan has (i.e. top of the quality chain). When the distributions start to increase in the not too distant future, the Mutual Fund folks should return to the industry and Seaspan should shine. This still appears to be an excellent candidate for tax-deferred accounts and I have been in the market today buying for both tax-deferred and capital appreciation accounts.

 

 

Cheers

JEast

 

[lessthaniv]

Thanks. What I was asking is why you analyze the value of this stock using cash flow instead and net income and p/e ratio. I've been in a number of trusts where cash flow and distributable cash seems very good but the net income isn't there and they eventually had to reduce distributions. To me this is a $10 stock earning $1 per share so it's earnings yield is 10%, a pretty fair valuation, undervalued maybe but not by a huge amount.

 

 

mranksi,

 

it's pretty standard to analyze cash flows, especially free cash flows, in lieu of net earnings. there are lot's of reasons to do this. net earnings do not include allocations for capex and are easily manipulated by accounting conventions. in seaspans case, they use swaps to fix up their variable rate debt (for which they don't use hedge accounting) and consequently it creates significant swings in net earnings depending which way interest rates are moving. so, their net earnings are not a good proxy for the true cash flows within the business. if you then apply a p/e to an "e" that is skewed, your valuation becomes meaningless. a p/e is more useful as a relative valuation tool.  two companies in the same industry with similar accounting techniques could be compared using p/e's to assist in determing relative valuations.

 

this is why the company presents us with "distributable cash". they begin with the net earnings number as reported but adjust it for non-cash items etc... to give us a clearer picture of the true cash flows and operating performance of the business. cash flow is the bloodline of the business.

 

hope that helps a bit.

[mranski]

thanks for the detail.  I'm used to analyzing using p/e for the most part on the stocks i look at. Depends on the business model i think.

 

 

[lessthaniv]

thanks for the detail.  I'm used to analyzing using p/e for the most part on the stocks i look at. Depends on the business model i think.

 

 

 

Mranski,

 

if you are interested, PM me and I'll send you my old CFA books on equity valuation which will help you out a lot. I'll even pay for the shipping if it's reasonable.

 

;D

[Myth465]

Here are some good podcasts - 1 or 2 talks about why to use Free Cash Flow instead of Earnings. Have a listen they are pretty short and to the point.

 

http://www.gurufocus.com/news.php?author=Geoff+Gannon

[mranski]

The Gannon stuff looks quite good at first glance, i'll review it in detail when I have a chance.

 

[lessthaniv]

http://www.investorvillage.com/uploads/25918/files/CSSSWMarch2010.pdf

 

Someone posted a Credit Suisse opinion on SSW as of March 16.

[gaf63]

http://www.bloomberg.com/apps/news?pid=20601109&sid=asR90b7attFI&pos=11

 

More on container ship shortage

[gaf63]

Grenville,  this is the same news that SSW released on Mar. 15 when reporting their yr. end results.

So 2 week old news and negative at that, of course no mention of deliveries for this yr., or  the request to move up deliveries by

some lines

Gaf

[Grenville]

Grenville,  this is the same news that SSW released on Mar. 15 when reporting their yr. end results.

So 2 week old news and negative at that, of course no mention of deliveries for this yr., or  the request to move up deliveries by

some lines

Gaf

 

Hey Gaf,

 

Thanks for the info. I didn't realize it was repeated info. I clearly haven't read the release on Mar.15 I'll delete the post.

[lessthaniv]

A while back I commented on the potential for super slow steaming to use up some of the container ships markets oversupply. Here is an article from the Journal of Commerce on this issue. As the article suggests, lots of new ships coming on board this year and next year but some oversupply definitely appears to be utilized.

 

http://www.joc.com/maritime/idle-containerships-fall-14-month-low

 

For balance, here is a second article estimating the time it will take to work off the total oversupply.

 

http://www.joc.com/maritime/overcapacity-last-years-says-oocl-chief

 

Cheers,

 

<IV

 

 

[gaf63]

Spot rates up, ship capacity lower on trans-Pacific routes,

slow steaming is helping and my original worries were unfounded

http://www.hellenicshippingnews.com/index.php?option=com_content&task=view&id=97458&Itemid=79

[lessthaniv]

http://www.businessweek.com/news/2010-04-23/container-lines-will-win-higher-asia-u-s-rates-cosco-says.html

 

 

Container Lines Will Win Higher Asia-U.S. Rates, Cosco Says

April 23, 2010, 12:01 PM EDT

More From Businessweek

 

By Wendy Leung

 

April 24 (Bloomberg) -- China Cosco Holdings Co., Asia’s biggest shipping company by market value, said container lines will win a targeted increase in Asia-U.S. rates this year because of rebounding trade.

 

“We strongly believe that this year’s TSA rates goal can be achieved,” Executive Vice President Sun Jiakang told reporters in Hong Kong yesterday. The Transpacific Stabilization Agreement, a group of 15 shipping lines, is seeking an $800 per 40-foot box rates increase on Asia-U.S. west coast routes in annual contracts starting around next month.

 

China Shipping Container Lines Co. said this week that customers were accepting the increase after lines ended price wars that contributed to industrywide losses last year. Trade volumes have also jumped this year as U.S. consumers resume purchases of Asian-made toys, furniture and electronics amid the economic rebound.

 

“China Cosco and other shipping lines may have broken even in the first quarter given how strongly the container-shipping market has recovered,” said Jay Ryu, an analyst at Mirae Asset Securities Co. in Hong Kong. “The concern is what will happen after the summer peak season because there is still a lot of new capacity entering the market.”

 

Asia-Europe Rates

 

China Cosco successfully raised rates on transpacific routes in the first quarter, as well on Asia-Europe lanes and on some Asia-Pacific routes, Chief Financial Officer He Jiale said. Shipping lines were also able to add peak surcharges, he said.

 

“I’m full of confidence about this year’s outlook,” said Chairman Wei Jiafu. “The demand for sea shipments is rapidly increasing.”

 

China Cosco, also the operator of the world’s largest dry- bulk fleet, fell 2.3 percent to HK$10.02 in Hong Kong trading yesterday. The shipping line reported an annual loss of 7.47 billion yuan ($1.1 billion) a day earlier.

 

The company has no plans to cancel ship orders or to scrap other investments this year, He said. Last year, it canceled eight dry-bulk vessels as global overcapacity damped rates. Capital expenditure will drop 12 percent to 10.2 billion yuan this year, He said.

 

The Baltic Dry Index, a measure of commodity-shipping costs, will likely average around 3,000 this year, Wei reiterated. That’s about 15 percent higher than in 2009.

 

The company has said its container fleet, China’s largest, will likely boost volumes 8 percent this year to 5.67 million 20-foot boxes. Last year, volumes dropped 9.6 percent as the recession sapped world trade.

 

--With assistance from Kyunghee Park in Singapore. Editors: Neil Denslow, Suresh Seshadri

 

To contact the reporters on this story: Wendy Leung in Hong Kong at wleung12@bloomberg.net

 

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

 

[gaf63]

SSW accepted their 47th ship last Friday , chartered  by COSCON

 

 

http://ir.seaspancorp.com/releasedetail.cfm?ReleaseID=463250

[lessthaniv]

Interesting transaction Gerry got done for the sale and lease back of one of their large 13000 TEU ships.  The 12-yr time charter remains and the sale was valued at about $150M which will go a long way to covering the funding gap of $180-$240M for the remaining newbuilds! If Gerry & Sai can do one more deal like this then the capex funding gap will be closed and all that excess cashflow (from the dividend cut)  can be used to go shopping for cheap boats in an oversupplied market. Or, they could even begin to consider a dividend hike. I'd rather they go shopping though. This will allow the company to continue it's growth trend even during troubled times. They are roughly paying out about 20% of the free cash flow as a current dividend.

 

I continue to gain more respect for this management team!

 

:o

 

<IV

[Uccmal]

I had a listen to the conference call this morning.  These guys are very credible and competent.  Gerry Wang knows all the ins and outs of the shipping cycle.  They are also constantly pursuing diversification in the companies they lease to.   

 

A side note regarding the dividend.  Another board member pointed out to me that the management companies bonus is connected to the dividend.  The dividend has to be raised back to 0.40 c/quarter before management gets a bonus.  Management dropped the dividend last year to conserve capital.  In other words they put the company ahead of lining their own pockets.  Lord Voltemorte (he who shall remain nameless) could learn from this.

 

That being said, once they are able they will raise the dividend, rather than buying used ships.  I would think there is an upper limit to the number of ships they can get into long term leases (12 years) anyway, and they still have 21 coming down the pipe until 2013. 

[JEast]

With respect to management incentives, you can find it in the 20-F filing on the SEC site.  In essence, the bonus has three (3) tiers and kicks in when the quarterly dividend starts to exceed $0.485 per share.

 

The incentive shares are entitled to a share of incremental dividends, based on specified sharing ratios, once dividends on our common shares reach certain specified targets, beginning with the first target of $0.485 per share, and the Company has an adequate operating surplus to pay such a dividend.

 

Cheers

JEast

[lessthaniv]

I had a listen to the conference call this morning.  These guys are very credible and competent.  Gerry Wang knows all the ins and outs of the shipping cycle.  They are also constantly pursuing diversification in the companies they lease to.    

 

A side note regarding the dividend.  Another board member pointed out to me that the management companies bonus is connected to the dividend.  The dividend has to be raised back to 0.40 c/quarter before management gets a bonus.  Management dropped the dividend last year to conserve capital.  In other words they put the company ahead of lining their own pockets.  Lord Voltemorte (he who shall remain nameless) could learn from this.

 

That being said, once they are able they will raise the dividend, rather than buying used ships.  I would think there is an upper limit to the number of ships they can get into long term leases (12 years) anyway, and they still have 21 coming down the pipe until 2013.  

 

Hi Al,

Yes I'm definitely aware of the bonus structure but as you note, these guys have already shown us their willingness to sacrifice personal gain for the betterment of the company. And, I believe they will do it again. This company was started during the Asian crisis years ago and I believe Gerry and the gang are looking for a way to capitalize on the current state of the container ship leasing market. I would suggest that we could see a couple of acquisitions of cheap ships (if the right deals were presented) prior to a dividend increase. I think this is the best long term strategy for the company and these guys seems to do the right thing.

 

Growth was coming to SSW through the newbuilds for the last few years. Going forward, that's not likely to happen with large oversupply of ships in the marketplace.  I think its likely that we'll see some consolidation in the oversupply to the long term survivors. That's where I expect their forward growth to come from until the oversupply of ships is depleted.

 

The good news here is both choices will benefit the shareholder on some level!   ;D

[Myth465]

I listened to the call last night and bought today a small starter position today. I will triple down if it drops below 10. Kicking myself a bit for not paying attention to this one. It looks like a no braining and the lease transaction removes the dilution issue, and allows them to keep growing if they choose.

 

Its funny I have been watching DHT, OSG, KSP, and TNP for ways to play the shipping market. All, but TNP and possible KSP (at $7 or so, I own the options) are train wrecks compared to these guys. Thanks again for the tip, I should have paid attention sooner. The interest rate swaps really gum up the financial statements though.

 

I bought in my Roth and am hoping for a pull back, 20% Yield plus share price of $20 sounds great in 2011.

[ERICOPOLY]

In other words they put the company ahead of lining their own pockets. 

 

I guess they put the company ahead of lining their own pockets partly because share dilution would make a .475 dividend harder to attain.

 

I have a lot of SSW now -- I started buying a little below $10 and bought the rest up to an average of about $11.

 

I don't understand why it's so cheap.  It's not like it's hard to see the dividend power -- they say in the latest quarterly release that $40.368m cash was generated "available for distribution".  On today's price that's a 22% yield.

[Myth465]

I am guessing I will have a chance to double down in the next few days.

[Cardboard]

"I don't understand why it's so cheap.  It's not like it's hard to see the dividend power -- they say in the latest quarterly release that $40.368m cash was generated "available for distribution".  On today's price that's a 22% yield."

 

I believe that there are 3 issues or concerns by the market holding this one back:

 

1- They rely on big international banks to lend them money for the ships that remain to be delivered. These lines of credit could be cut if banks run into trouble. Similar to when the banks did not want to provide funds on some private equity deals because they were tight for cash.

 

2- Some ships will come for renewal over the next few years. Current spot rates are lower than these leases, so terms on renewal should be less favourable. This one is also linked to the strength of the Chinese economy.

 

3- They need to raise $140 million in equity between mid 2011 and mid 2012. It creates uncertainty since we don't know what will be the terms. However, it has been decreased from the $180 to $240 million range that they provided before which is excellent news.

 

These 3 things all have macro all over them, so despite a structure that seems to deliver free cash no matter what, it seems to explain why SSW swings so much when the market gets scared.

 

Another concern for me are these $200 million preferreds convertible at $15. They also pay 12%. So the "parent" did help Seaspan to get through this crisis, but it is not like it was free.

 

Nonetheless, it seems cheap to me as well. I figure that they could make $3 in FCF by mid 2012. That is assuming some bumps along the way, so it is attractive.

 

Cardboard

 

 

[ERICOPOLY]

 

3- They need to raise $140 million in equity between mid 2011 and mid 2012. It creates uncertainty since we don't know what will be the terms. However, it has been decreased from the $180 to $240 million range that they provided before which is excellent news.

 

 

 

The Q1 2010 conference call transcript addresses this uncertainty a bit:

 

 

Matt Troy – Citigroup

 

The timeframe, is it possible to assume that you could have addressed the majority portion of that $140 million by the end of this year? I know obviously there are various moving parts and pieces, market variables where rates are, what the markets look like. In terms of timeframe is it reasonable to assume that 2010 will see the majority of that addressed or is it more of a 2011 solution?

 

Gerry Wang

 

We’re very confident that this will be taken care of before the end of this year but one thing I want to highlight to you and to the audience here; what we are trying to do is not just taking care of the equity requirements starting from mid year 2012 what we want to do is really to create additional fire power for the company to take care advantage of the opportunities that arise from the distressed situations that I have just mentioned in terms of the unavailability of financing for some of the new building vessels that are under construction or that have already been finished in terms of construction. That’s our set plan and we’ll continue to be very diligent and to make sure that whatever we do is not going to dilute our existing shareholders.

 

 

They also provided a forecast for 2013, after all the ships have been delivered:

 

We expect to exceed approximately $700 million for year of contracted revenues, $500 million of EBITDA and $300 million of distributable cash flow starting from the year 2013 when all our new builds are delivered.

 

[JEast]

As an FYI for the some to the potential 4,250 TEU renewals coming up, note that on the conference call the company indicated that current rates (subject to change) were in the $20K p/day range for these vessels.  Currently for the Hapag-Lloyd and CSCL Asia vessels they are currently earning below market rates in the $18K range.  I would suspect presently that the liner majors are weighing their options and may renew on fairly reasonable rates and reason the company sounded optimistically.

 

Cheers

JEast

[Myth465]

Very interesting data

 

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

 

Im not one for spreadsheets and number crunching, but from eyeballing things the new ships that have come online in April and May are extremely profitable. The ones coming on for the rest of 2010 and 2011 are just as nice as well.