This stock is being priced assuming 100% use of all 200M of the shelf offering....I think this assumption is pre-mature....although unlikely they would file and not have some definite intentions in line, nothing has become official and they still have over 7 years useful life left on there VLCC's.
without the shelf offering, this is a $20+ stock: allow me to illustrate:
Approx $70 million in revs going forward is a conservative and sustainable figure-- my assumptions-- 40% utilization rates for the next several years on current spot market tankers + those coming off line in the next year or two utilized in the spot market -Kamden and Golden Future-- a mid $20's weighted average spot rate going forward and utilizing a historically conservative margin of 30%
put all that together and you have about .85/share GAAP EPS...add back in depreciation which is essentially equal per share and you are looking at $1.60 -$1.70/share going forward for CF from OPS-- which is spot on what they reported for 2011.
utilizing GAAP EPS in order to effectively PV depreciation into the equation and add in tangible book and you are looking at $21.5
10-k clearly states dividend policy: "Our dividend policy is to declare quarterly dividends to shareholders, substantially equal to net cash flow in the reporting quarter less" --which puts you at the 7 1/2 -8% range for $21.5 share price
assuming the worst, we are trading at a fair value on a per share, but unless they were to purchase ships with no contracts or hopes of revenues lined up, you are looking at a very likely stable dividend for the quite foreseeable future of $1.7 which is right at 13% and are qualified dividends to boot ....developing nations will support this trade for years to come....we might have slowdowns but the writing on the wall is clear.
admittedly, a wild card that needs disclosure-- the result of any legal action with Sanko and there patronage going forward
this traders sentiment: accumulate
I think management pretty clearly laid out today exactly what I was saying on this original post: The assumption of the $200M offering diluting current shareholders is premature when discounted for PV.
This is straight out of today's quarterly filing:
"The Company’s intention is to renew and grow the fleet and it has for some time been considering acquisition opportunities. The combination of declining asset values and weak spot and time charter earnings, have however made it challenging to find satisfactory investment opportunities. The Company’s financial flexibility is strong with cash at hand,
low gearing and availability of a revolving credit facility of $75 million and the Company can respond quickly should interesting acquisition opportunities occur."
aka i read that as: "we are not going to buy ships that might still decline in value and might not provide adequate ROI." Pretty simple. One could view this quite negatively when viewing the market and company as a whole.
I would argue, however, that even during a relatively depressed rate environment, the company is still turning $48M in free cash flow annualized -- meaning they could cover the $2 dividend if they chose. They made a prudent choice to reduce that dividend to $1.40 annualized, which happens to be a number I have mentioned at least twice as being a sustainable dividend going forward (when viewed as a "smoothed" number -- 2015, 2016 and 2017 could be approximately $0.60/share based on current market environment and utilizing excess cash from 2012, 2013, 2014.)
Lastly, even repaying the LT debt obligations of $150M utilizing the current fleet, my numbers say they never actually hit negative cash flow territory, and if fact, could maintain a $0.60 dividend annually (as mentioned above) before returning to $2/share+ cash flow levels.
The new ships will have to come eventually. With approximately 7 years of useful life left on their current VLCC's, I don't think anyone is debating it will happen. The question is when. But if they pay off the debt with cash flow and then issue shares for new, more fuel efficient VLCC's and have their capsizes essentially all brand new -- we will be swimming in dividends.
Also, on a technical basis, this is the third time this decade the stock as tested the $11~ish range. Both times before proved to be a low.
I was going to post how VLCC rates have been exceeding FFAs by about $10K/day for weeks now or how China just published intentions of key infrastructure development or how VLCC has zero exposure to Capesize rates in 2012 which is what has been taking the lumps lately.
Instead, I think I will keep it simple and just say that I am sitting on 35% cash, can reinforce that to an absurd % comparatively if truly necessary, and overall am doing nothing more than chuckling a little bit at the events that have transpired here over the past weeks. Someone kept bashing for $8.... make it $6.... I like this game.
Here is this traders final thoughts. After this I will likely be done corresponding because I have stated my piece. Although informed and educated responses are always desirable.
I again reiterate my initial posting that the market is already factoring in the $200 M shelf offering. I slightly alter my initial stance to suggest that the approx $150M in long term debt may likely be repaid utilizing proceeds from the offering. I also suggest that the firm will be able to acquire another vessel with proceeds from said named offering if so desired.
Where does this leave us, net dillution of issuance, repayment of LT Debt + one more ship (possibly) --
My conservative (imho) ballpark suggestion is this:
1) Revenues going forward of approximately 105M
-- 75% utilization rates at $30K/day
2) Net Income
-- Ballpark $30M
3) Tangible Book value
--$15 (to reflect carrying value of 1 additional ship and net of dilution of issuance and repayment of LT Debt)
4) Cash Flow from operations
-- $1.35 +
Share price based on operating cash flow and historical avg: $13.5 - $15
Share priced based on book and PVFCF: ~~ $21+
*Throw in a little premium for the 8.5% short position if you're feeling frosty
i.e. exactly 36 months out for modeling simplicity, would be that they issue the $200M, acquire 3 ships, each contributing approx $12M annually in cash flow to include depreciation. This would create ample cash flow in excess of current operations and dividend levels and allow a build up of cash to meet the first $50M approximately in LT Debt due May 2015 and the $50M obligation annually for the following two years as well ending May/June 2017.
1) Revenues going forward of approximately $130M
2) Net Income: ballpark $40M
3) Tangible book value: approx $15.5 (to reflect carrying value of three additional ships – net dilution of issuance)
4) Cash Flow from operations:
-- $1.30 - $1.40 range if applying a very roughly leveled number for simplicity due to LT debt repayments in 2015-2017.
Share Price based on operating cash flow - $13 - $14
Share price based on book and PVFCF: ~~ $20.50
It seems the high teens (as others have recently mentioned) would be a reasonable midpoint between the two textbook methods of valuation
Educated/informed thoughts welcomed.
my mistake on the 1.70 GAAP EPS.....1.41 is correct....must have been on a roll
regardless, at 70 mil in sales with the rest of the income statement falling in general line with past performance, you are looking at a $21+ stock prior to the $200 mil potential issuance
speculation on the Golden ocean sale although potentially having validity in some cases, is still speculation/opinion at the end of the day
does anyone have any thoughts on my assumptions to arrive at the roughly 0.86 GAAP EPS estimate or any other thoughts on concrete financial data vice conjecture?
the secondary in Sep 2010 priced at $19....just a general hindsight ballpark reference here
Market says - $1.41 earnings per share last year with a 10 PE gets a $14.10 stock with Sanko reduction in earnings about 75 cents so it gets you where you are at $13.35
At 52 week low if you believe the shippers are due for a bounce then buy, nothing good has been happening to shippers though.
The thing that I do not like is that Frontline's owner JF sold out his 2.5 million share Golden Ocean stake in VLCCF, when VLCCF has actually been doing pretty well. My thoughts are that instead of helping VLCCF he is now a bigger competitor, let me explain - Frontline is a money losing competitor, but he is taking this CASH to spend on FRO 2012, a new energy efficient fleet that is new and at bargain purchase prices will have low breakeven costs allowing lower chargeable rates than FRO - original fleet. So going forward JF whose management manages VLCCF will have no incentive any longer to do right by VLCCF. Comments welcome.