written by reader Seadrill, Golar, Knightsbridge Tankers, Frontline, SFL & Others

By qwa2, September 11, 2012

I have a smaller than I would like position in Seadrill that I opened last year (thank you Travis), but had no idea until reading the article (link given below) in Bloomberg about the host of interconnected companies that Fredricksen seems behind. I can tell from the personal portfolio section that Travis has a position in Golar… does anyone have insights into any of the other companies? On the surface, the tanker business looks terrible at the moment (is this opportunity or disaster lurking?), but SFL (Ship Finance International) with a near 9% dividend yield looks appealing (FYI, I think needs to bought tomorrow (9/11/12) to get the next distribution). Does anyone have any knowledge about Frontline and whether the splitting of the company in 2 pieces has been at the expense of common stock holders? Again, this is a completely new area to me so all insights are appreciated.

Other companies include: Golden Ocean, Golar LNG Partners, International Tankers Corp LTD


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Travis Johnson, Stock Gumshoe
September 11, 2012 10:40 am

Lots of overcapacity in both bulker (golden ocean) and tanker businesses right now, from what I can tell — and since Ship Finance largely owns vessels of those types (though they own at least one Seadrill rig, too), their future profitability depends on Frontline and Golden Ocean also doing better at some point (or at least, not going bankrupt).

I’ve owned many but not all of those companies, but haven’t had any interest in the tanker or bulker businesses lately — these are commodity businesses now for the most part, Frontline did extraordinarily well because they got out ahead of the curve and bet big on double-hulled tankers and oil shipping demand at a time when other people were waiting for demand to improve before they invested, so they reaped remarkable rewards for many years in the mid-2000s, particularly. Seadrill did the same thing, ordering deepwater rigs years into the future at a time when other, more cautious folks were waiting to have firm contracts before they would place rig orders with shipyards. A good amount of the value his companies have generated comes from the fact that the newbuilding rig or tanker that hits the water is often worth far more on the open market than it was when they ordered it three or four years earlier.

Fredriksen companies are almost all designed to generate huge cash flow and turn that cash flow into dividends — partly by using massive amounts of debt to finance aggressive expansion when he thinks the time is right. It leads to great returns when they’re right, but it also leads to very volatile stocks and sharp rides down when the party ends, or when the debt becomes too much, or if demand dries up.

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