A First Look at Ship Finance International (SFL). Floating or Sinking?

What do they do – Ship Finance International leases a fleet of 57 crude oil tankers exclusively to a company called Frontline Shipping Limited. Ship Finance purchased the oil tankers from Frontline Ltd., the parent company of Frontline Shipping. Ship Finance also provides administrative and maintenance services for the vessels through a partnership with Frontline Management Ltd., another subsidiary of Frontline Ltd.

Preferred stock: none.

Bonds: $1.7 billion outstanding


DIVIDEND RECORD: Spotty.  They have a pattern of growth and cuts.  In 2007 the dividend was $0.55 quarterly.  In 4Q2008 it grew to $0.60.  Then they cut it in half in 2009.  It grew from $0.30 to $0.39 in 2009 to 2011.  This quarter it was cut to $0.30 again.

Dividend: $0.30 quarterly

Dividend yield: 8.8% ($1.20 annual dividend / $13.74 share price)

Dividend payout: 57% ($1.20 / $2.09 recent EPS) –OR- 55% using average adjusted earning power ($1.20 / $2.16)


EARNING POWER: $2.16 @ $79.12 million shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)


Net income


Adjusted EPS



$181 M

73 M




$168 M

73 M




$182 M

73 M




$193 M

74 M




$166 M

79 M


2011 (est)


$133.45 M

79.12 M


2011 earnings quarter by quarter


Net income


Adjusted EPS

2011 Q1


$32.1 M

79.12 M


2011 Q2


$41.47 M

79.12 M


2011 Q3


$27.45 M

79.12 M


2011 Q4 (est)


$32.43 M

79.12 M


2011 Total (est)


$133.45 M

79.12 M


Six year average adjusted earnings per share is $2.16

Ship Finance International (SFL) is currently trading at 6.36 times average adjusted EPS.  This is stock is in contrarian territory.

Consider contrarian buying below $17.28 (8 times average adjusted EPS)

Consider value buying below $25.92 (12 times average adjusted EPS)

Consider speculative selling above $43.20 (20 times average adjusted EPS)

BALANCE SHEET – You would be paying a 30% premium to book value at today’s share price.  The company is strapped for cash and current assets.  Too much debt for my liking.


Book value per share: $10.61

Price to book value ratio: 1.3 (under 1.0 is good)

Current ratio: 1.0 latest quarter (over 2.0 is good)

Quick ratio: 0.49 latest quarter (over 1.0 is good)

Debt to equity ratio: 2.2 (lower is better)

Percentage of total assets in plant, property, and equipment: 4% (the higher the better)

CONCLUSION – Ship Finance International is a high dividend stock yielding 8.8% despite the recent dividend cut.  The amount of the dividend has been irregular, but it has paid 31 quarters of consecutive dividends.  The company’s share price has been pummeled into contrarian territory at only 6.36 times average adjusted earnings.  I like this company below book value of $10.61.  It has traded below book value as recently as December 2011.  The rest of the balance sheet is weak.  It has very little current assets relative to current liabilities (current ratio).  I’d like to see them pay down their long term debts with their free cash flow.  The return of the worldwide recession will drive SFL’s stock price down again.  You’ll have your chance to buy it below $10.61.


DISCLOSURE – I don’t own Ship Finance International (SFL).

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Published in: on March 15, 2012 at 1:21 pm  Leave a Comment  

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