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Wednesday, December 15, 2010

Seaspan (SSW): Shares Trade Down, What's Wrong? Time to Sell? Or Wonderful Gift?

Since November 1st, shares of Seaspan (SSW) are down 9% while Global Ship Lease (GSL) and the S&P 500 are up 6% and 4%, respectively. Chart from Google Finance (GOOG):

What's going on here? First, positive company-specific events came to pass for Global Ship Lease, events that we (and the "Market") contemplated but were still waiting for in our 11/3 post. Second, the overall market is seemingly working higher on generally more favorable economic news (and possibly the year-end "Santa Clause Rally"). OKAY, but what about Seaspan? OR, as someone asked us, why is it trading down?

Honestly, it's anyone's guess and could be answered with the wise guy (but true) response: more sellers than buyers? In this case, this explanation is somewhat sensible considering that some short-term oriented investors (traders) might be taking profits after solid year-to-date performance.

From our view, fundamentals remain sound and we can again relay what we shared in our 10/27 post regarding Seaspan and Global Ship Lease after favorable price runs:
  • Why keep holding? In both cases, fair values remain meaningfully higher than current trading levels based on excess cash generation and stable business models that adequately support high levels of leverage (debt). Our February post on Seaspan largely provides the answer for SSW, but we'll come back with more commentary in the near future, including discussion on Global Ship Lease.
We still owe readers some follow-up on Global Ship Lease. The nutshell version is that we believe the company's stable cash flow and potential for renewed dividend payments next year suggest a higher fair value range.

For Seaspan, we have recent commentary from CEO Gerry Wang courtesy of Bloomberg via The Washington Post (WPO) - we Tweeted the video link and also include here:
AND, also from TheStreet.com:
  • Seaspan CEO: Global Trade Not Slowing
  • NEW YORK (TheStreet) - Gerry Wang, CEO of containership owner Seaspan, says global trade is on the rise despite all the tough talk between nations. Mon 12/13/10 10:00 AM EST -- Gregg Greenberg

What about sector news? As before, industry news remains mostly favorable -- various sector and economic news from The Journal of Commerce over the past week:

Port Tracker Upgrades Asia Exports Forecast
The National Retail Federation is revising upward its forecast for U.S. imports from Asia over the next several months, thanks to strong retail sales at the start of the holiday shopping season.

OOCL Raises Rates on Asian Exports in January
Like several other carriers, OOCL is raising freight rates on shipments out of China and the Far East next month in what is ordinarily the slack winter season.

Exports Push NY-NJ Port Volume Up 11.6 Percent
A strong surge in exports pushed container volume at the Port Authority of New York and New Jersey up 11.6 percent year-over-year in October, restoring recovery momentum at the East Coast's largest port.

Utilities, Factories Push Industrial Production Up 0.4 Percent

The U.S. industrial sector rebounded solidly in November, as manufacturing, construction and utilities all posted gains, according to Federal Reserve data reported on Wednesday.

CEOs Raise Their Economic Outlook
CEOs of major U.S. manufacturing and service companies in the Business Roundtable gave their best outlook for economic activity since early 2006.
Hong Kong Sets Air Cargo Record
Hong Kong International Airport set a monthly record for cargo tonnage in October, beating the previous high set three years ago and regaining growth momentum heading into the peak air freight shipping season.

Airbus Forecasts 5.9 Percent Freight Growth
Airbus forecast on Monday that some 870 new freighters will join the world's air cargo fleets over the next 20 years, a more optimistic outlook for aircraft production than rival manufacturer Boeing gave in November.
Seaway Cargo Shipments Gain 19 Percent
Shipping on the St. Lawrence Seaway and the Great Lakes is winding up the year with strong growth based on staples of grain exports along with imports of iron ore and steel.
Freight Index Climbed 0.2 Percent in October
The Transportation Department's Freight Transportation Services Index climbed 0.2 percent in October from its September level, rising for the 13th time in 17 months.

THUS, although industry participants -- including Seaspan (per our November post) -- expect the shipping recovery and freight rates to moderate in 2011 (and potentially decline), most fundamental-oriented headlines are pointing in the right direction. In fact, from a global standpoint, most onlookers would probably acknowledge that underlying global growth trends appear in-tact. Increased trade around the globe is a reasonable prognosis for 2011 and beyond.

It may come as no surprise then that we see the recent decline in shares of Seaspan as a gift. We have been adding to our stake in the company with a long-term view.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long GSL, SSW.
© 2010 Jeffrey Walkenhorst
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  1. Is your recent tweet about China and coal related to GSL/SSW shipping coal, or more about general economic activity? Thanks.

  2. Hi Anonymous,

    Thanks for your question. My Tweet was related to your latter comment -- conveying global economic trends and shifts, in this case around energy and natural resource supplies/trading.

    GSL and SSW are unrelated to energy/coal as they own container ("box") ships, not dry bulkers used to transport commodities like coal. NM and DRYS are examples in this segment.

    DRYS partial description from Yahoo Finance -
    DryShips, Inc., through its subsidiaries, engages in the ownership and operation of drybulk carriers and drilling rigs that operate worldwide. Its drybulk fleet principally carries various drybulk commodities, including bulk items comprising coal, iron ore, and grains; and minor bulk items, such as bauxite, phosphate, fertilizers, and steel products.



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