ATCO - Atlas Corp

[gaf63]

As you said Uccmal they dont understand SSW

here is a quote from the Wells downgrade

 

"as seasonality runs its course through the containerized freight complex" and

"we believe further value recognition may occur at a slower pace for the time being, particularly as seasonally lower freight volumes potentially cut some of the froth from the container sector"

 

And below is a comment from Seeking Alpha, and part of the  good news is that COSCO wants their ship deliveries moved forward, hopefully that is possible,

 

 

http://seekingalpha.com/article/232917-six-key-points-from-seaspan-s-3q-2010-earnings-call?source=yahoo

[biaggio]

Are there any public companies that scrap old vessels? I was thinking that may be a good business to be in.

[ERICOPOLY]

I found some data on scrap prices in July 2007 (only source I found yet).  Looks like it's in the $425/ton range.

 

See page 11:

http://www.robindesbois.org/english/shipbreaking9.pdf

 

I don't know how much these ships weigh, but I have the feeling that the scrap value is nowhere near as high as 1/3 the cost of a new vessel.  Unless a $100m vessel weighs 77,000 tons! (I think not).

 

[biaggio]

updated article (april 2010) on scrapping ships:

 

http://metalsplace.com/news/articles/33620/steel-scrap-business-booming/

 

"The best time to invest has gone. When everyone is optimistic, the profit ratio will go lower and lower. Overall the price of the iron and steel scrap has already increased to a high that is risky to gamble on," he said, estimating it may surge to $800 per ton this year.

[biaggio]

article that might help you.

 

http://virginiahughes.files.wordpress.com/2007/09/shipshape.pdf

 

 

"In an empty container ship that

weighs about 18,000 tons, for instance, about 14,000 tons of

that weight comes from the steel. "

[Myth465]

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]

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]

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.

 

Packer  

[ERICOPOLY]

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]

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?

[Packer16]

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.

 

Packer

[ERICOPOLY]

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.

 

Packer

 

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]

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.

 

Packer

[ERICOPOLY]

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.

Packer

 

No, sorry.

 

 

[gaf63]

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

[ERICOPOLY]

no mention of using it for debt repayment however. 

 

 

It sounds like they are telling the market to expect the debt will be rolled over.  The caller gave Mr. Wang the opportunity to say something conservative regarding repayment of debt but instead he just talked about rolling it.  So in terms of retained cash flows, I figure they'll buy new ships with it.  So it sounds like growth.

 

 

From the CC:

 

Urs Dur – Lazard Capital Markets

 

All right. It was more of a question and that's a great point, Gerry. And I hope you – I think I might have been slightly misunderstood. If you – you have some debt maturities coming up in 2015, I believe. Let's just say it is 2015 today in today's bank environment and those ships are five years older, would you feel confident in the ability, given the length of the contracts you have remaining on those vessels that are encumbered, that you'd be able to redo that debt at this time, or would that be more challenging?

 

Gerry Wang

 

We think we should be quite easily doing the debt renewal given the charter profile that has with those ships and also our own overall balance sheet in terms of financing capital structure.

 

 

[finetrader]

here is a good link for shipbreaking:

 

http://en.wikipedia.org/wiki/Ship_breaking

 

also:

http://en.wikipedia.org/wiki/Tonnage

'Lightship or Lightweight measures the actual weight of the ship with no fuel, passengers, cargo, water, etc. on board.'

 

it seems like a 5050 TEU weight about 20000 tons:

 

http://www.allbusiness.com/transportation-equipment-manufacturing/ship-boat-building/294826-1.html

'The ship has a lightweight tonnage of 20,112 tons, with 65 per cent of the steel being high tensile. '

 

All things considered (cost to dismantle a ship, environmental issues)  I don't think there is a lot a value scraping a ship. Maybe a few millions here and there.

How much would you pay for a ship if you are a scraping company? Certainly no more than half the scrap value of the metal.

 

[tengen]

Here is a blog I've come across this morning. The writer compares GSL,SSW,DAC.

 

http://harbor.typepad.com/analysis/2009/12/containerized-shipping.html

 

The author of the blog post was spot on. DAC has done nothing, SSW has performed well, but GSL is taking off into the stratosphere.

[Myth465]

I am actually not too happy about this move up. We are up 10% over the last 3 days or so. I noticed that Options are dirt cheap on high yield stocks and was going to trade into August options for this and leaps for FTR. This move has cost me 30-40% on SSW within 3 days. I figure these will continue to trade up as long as yields are low and management appears to be making the right moves.

 

I think I will hold on to my shares given the move, was wondering what sent it down over the last 2-3 weeks and wanted to add.

[Myth465]

Thanks Parsad!

 

 

[JEast]

As this post is now in the idea section, and I was the originator - I suppose that the full disclosure be presented.  As such, attached is the original white paper.  Though a little dated at this juncture, I am of the belief that much of the thesis is still intact even at current prices.

 

Feedback and critic is always welcomed from fellow board members.

 

 

Cheers

JEast

[jasonw1]

Thanks JEast and fellow board members for SSW idea, bought some and had order for more at $12 but it just took off. I guess I shouldn't complain too much when your holdings are going up.  :)

 

Has anyone looked at another shipping stock, NNA? I recently bought some @ <$4.

[Myth465]

As this post is now in the idea section, and I was the originator - I suppose that the full disclosure be presented.  As such, attached is the original white paper.  Though a little dated at this juncture, I am of the belief that much of the thesis is still intact even at current prices.

 

Feedback and critic is always welcomed from fellow board members.

 

 

Cheers

JEast

 

JEast I think Mr. Market has and will provide you with all the feedback you need. Thanks again for the idea, and thanks for the full white paper. I know I will learn something.

 

Regards.

[gaf63]

Thanks JEast for the  original analysis on SSW.

I  had moved money from an IRA in mutual fund to a brokerage acct. and was in the process of adding to my

position in SSW in the 12's, filled about a 1/3 of what I wanted , then the WFC upgrade pushed it higher

so my dilemma is, do I chase it here , still $.55 dollar from my original cash flow IV, or wait for a pullback

in SSW and/or the market.  Losing out on a 10% move bugs me , but think I should grin and bear it

 

 

[Uccmal]

I wasn't aware that WFC had upgraded it?  Any details you could share.

 

Gaf, Why not add half of what you intended and see if it retrenches.  We are probably due for a few down days in the market to bring everyone back to Earth soon.  Who knows.