Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: anializer who wrote (37302)	4/8/2010 10:06:30 AM
From: Spekulatius	Read Replies (2) \| Respond to of 78750

Anializer - the book value seems to overstate the value of their assets (ships) on the balance sheet. I am not sure how much below stated book value FREE is - they had 140M$ in equity (before the secondary) and 120M$ in debt, yet they were in violation of their loan covenants by 12/31/08. those loan covenants are based on NAV of the tankers not the book value, so clearly the banks got worried and that forced them to do a secondary rather than getting a waiver from the lender. I also notice that FREE ships are rather old - >10 years - with a glut of new ships coming to market the value of older ships could fall even more. In order to make an investment decision we would need to be able to determine the actual value of FREE's ship, right now we don't know if FREE trades above NAV or not. Anybody has any number how much the value of ships has plunged? From memory I recite about 20% for newbuilds but I have no clue about value changes for well used ships.

To: anializer who wrote (37302)	4/8/2010 11:39:56 AM
From: Walter Bagehot	Respond to of 78750

It is an interesting industry, and certainly volatile compared to many others. 70% fall in value in some vessel values, and in many cases they remain above long-term average pricing. To your points: - I don't view many "book values" as being related to real asset values: for example, vessels costing $150m each in 2007 are now worth just $50m in some cases due to the huge bidding-up in the boom years. Write-downs are unlikely until the charters fail to cover financing and opex costs - Short-term charters expose you to spot transportation market, which while nice if you have an interest in riding any foreseen curve are distant in my mind from a Graham value investment - Long-term charters are more stable, but charter counterparties have to be stable and honest. There is anecdotal evidence of strong steel firms breaking long-term charters that were valued far higher than the spot market. It is not an industry full of top-notch characters that Buffett would invest in - Be aware of orderbooks, prices at which contracted, and loan commitments against those orders. - Be aware of loan refinancing (lower LTV than would have been possible in boom years) - Cash balances can easily be eaten away by operating expenses if charters do not materialise or management is poor My problem with investing in them from a value perspective is that there is not really a floor to their earnings in general, and no enduring franchise. Much depends on forecasts that I discount entirely in my analysis. My earlier points stand as well on the industry in general. Good luck Regards, Alex