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Monday, March 14, 2011

Seaspan (SSW): No Smoke and Mirrors as Company Raises Dividend by 50% to $0.75 per Year; Cash Flow Keeps Growing

Seaspan announced 4Q10 results this morning as well as news of a new joint venture with The Carlyle Group. Notably, we were pleased to see the company increase the expected annual dividend for 2011 to $0.75 from the prior run-rate of $0.50.

We won't recount all details here, but recommend reviewing the press release, presentation, and conference call, all available on Seaspan's Web site. Below, we pull a few slides from recent events:

Mar 14, 2011
8:30 AM ET
Seaspan 4Q 2010 Earnings Conference Call
Webcast Listen to webcast
PDF View Presentation 783.5 KB Add to Briefcase
Mar 2, 2011
4:00 AM ET
DnB NOR Markets Oil, Offshore & Shipping Conference 2011
PDF View Presentation 6.3 MB Add to Briefcase

A few general highlights and observations (click slides to enlarge):

(1) Seaspan's operating strategy is straight forward and clear, which we like -

(2) Management continues to execute on the strategy and the company's in-service fleet and distributable cash flow keeps growing, as originally expected:

(3) Enabling higher dividends, as announced with today's results:

Accordingly, Wall Street continues to embrace the company - from "China Analyst" Analyst Actions this evening:
  • Cantor Fitzgerald upgraded Seaspan Corporation (NYSE:SSW) from Hold to Buy, and raised price target from $14 to $18. Lazard Capital Markets reiterated Buy rating and $19 price target on Seaspan Corporation (NYSE:SSW).
Sometimes, it's time to run (i.e., sell) when the broader Market embraces a position, yet in this case, we believe our original thesis remains in-tact. We see incremental upside as the company's distributable cash flow keeps increasing and relay commentary from our Just Like Clockwork post in January:
  • Given the stable business model and growing streams of distributable cash flow, we still believe a more reasonable intrinsic value is between $24-30 per share [or 8-10 times distributable cash flow].... Assuming the global economy keeps growing, we expect shares will once again achieve the $20s-30s even with dilution related to capital raised during the downturn to fund new builds. As "built-in" growth materializes through 2011 and 2012, we expect brokerage "price targets" will consistently bump higher.
Of course, as with the dreadful natural disaster in Japan, we never know what the future holds. Thus, as with life, all investments carry risks. We can only strive to mitigate risks through due diligence that carefully assesses risk/reward profiles.

Here, Seaspan continues to trade at only six times 2012E distributable cash flow. Moreover, a very capable and incentivized management team is actively pursuing growth opportunities (e.g. JV with Carlyle), and we're confident that Seaspan's ships will be steaming the oceans for the foreseeable future.

We still like the odds and our growing Seaspan income stream.

Happy investing,

Jeffrey Walkenhorst

Disclosure: long SSW.

© 2011 Jeffrey Walkenhorst
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