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Ship Finance International Limited Message Board

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  • arbtrdr arbtrdr May 10, 2006 4:44 PM Flag

    Worthless discussion


    What is so hilarious? You have posted here for a long time yourself. I did not whine. I simply stated that most of the posts contain little or no meaningful discussions about SFL, its value, and its future. The personal bickering and ego building needs to be taken elsewhere.

    You want something of value, try these questions.

    Flankseven used to have meaningful analysis of SFL and a good attempt to decipher the real value of this company. Others discussed how to seperate the financial statements of FRO and SFL. While I have an accounting background I most definately do not understand capitalized leases.

    SFL is undervalued in my opinion. What is the real value? How can I make sense of the leases? How does one put a $$ amount of the accrued incentive $$ from FRO? What does SFL really have after the leases expire? With revenue recognition being frontloaded, how will SFL be able to continue to current dividend and retire its debt?

    I've got more intelligent questions smart guy. I am simply unwilling to wade through 500 posts containing only drivel.

    This board needs fewer posts that are actually constructive.


    PS- look back at the old posts and see who really is an "old timer" on this board. Time for you to put up or shut up!

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    • Arb, since you are a very respected poster (I've seen you on other baords), please allow me to try to bring some clarity to these questions.

      Let's start with the leases and expriation. Since going public, SFL has continued to grow its asset base with new leases. It must continue to do this when economically attractive or it will become a self-liquidating SPE. So far, even at the top of the market, SFL has sourced deals of meaningful size, so financial markets permitting (a big spike in LIBOR could be very hurtful to new deals), SFL should be able to continue the progam they have already started. Look can look back over their SEC filings or the presentations on their website for details on each acquisition which has ranged from container ships to tankers.

      Incentive pyaments. By accrued, I assume you mean those earned but not yet paid. I think those are subject to a modest discount rate reflecting time and some credit risk (which is mitigated by the funds in escrow to cover such shortfalls). With respect to future incentives, I think it's useful to look at these as a strip of call options on tanker rates. We know these options have a positive value if only because of volatility and time. Ascribing a value could be very cumbersome in terms of valuing each strip (maybe someone can build a quick model to handle this, but I'm not going to do it). I figure this is worth $2 to 3 per share, but I don't need it to reach the conclusion that SFL is meaningfully undervalued.

      I've put the value of SFL at $20 per share WITHOUT taking into account the future incentive payments. Magnus Fhyr (formerly of Jefferies until he recently left to a hedge fund where he will make much better money) put the value closer to $28 per share based on SFL's relative cash flow multiple.

      Capital Leases and Value.
      The big thing to get about these capital leases is that when FRO pays a dollar to SFL only a portion of that dollar runs through the P&L account with the rest credited directly to the capital lease asset on the balance sheet (think of accounting for a mortgage loan. You recognize the interest payment as income and the capital repayment as credit against the asset's carrying value). Because of this accounting method, you have to look at the cash flow statement to find the company's true operating cash flow because EBITDA misses all the capital lease repayments (yes, I realize amortization should be recaptured in EBITDA, but these capital repayments are not classed as an amortization expense).

      When you look at SFL versus other tanker companies and tanker leasing companies, they trade within a fiarly tight EBITDA multiple, but on a cash flow basis SFL trades at a significant discount because the market has not taken into account how these capital leases run through the financial statements. There is your hidden value.

      • 1 Reply to mtennenbaum2001
      • mtennenbaum, please put some meat on this:

        <<So far, even at the top of the market, SFL has sourced deals of meaningful size, so financial markets permitting (a big spike in LIBOR could be very hurtful to new deals), SFL should be able to continue the progam they have already started. >>

        How many deals? of what significance? Someone just posted that in almost 2 years, SFL has done very little independent business. 3 ships?!! Seems to me that FRO has grown the SFL business, not SFL. Therefore, the marketplace will not properly reward SFL on the stock exchange. They recognize that SFL is FRO's cookie jar. Why don't you?
        Hoping you won't run and hide...

    • arbtdr, quite good questions. While one can focus on the numbers, isn't the real answer "whatever FRO is willing to give SFL" the true answer? After all, the same execs run FRO. And these same execs can't get SFL into the ship finance business. They can only give SFL the scraps FRO doesn't want! therefore who needs accounting!!! The accounting only presents what FRO is willing to offer. So... should the tanker lease rates go soft over a period of time, don't you think FRO will reorganize and have SFL acquiesce by being more lenient. AFter all, this is not a true banking relationship!!!! It's a cookie jar relationship that can go stale.

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