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6 Reasons Why One Shipping Stock Looks Like Value


Knightsbridge Tankers represents a 'get paid while you wait' opportunity.

In other posts I have discussed positioning my portfolio for a correction as we enter the traditionally slower summer months and begin to focus on the looming policy cloud and the resulting "fiscal cliff" that awaits us at the end of 2012.

Part of my strategy in preparing for the risk-off trade is identifying dividend-paying stocks that display both attractive valuation metrics and strong profitability metrics. I believe that Knightsbridge Tankers (VLCCF) meets these criteria and represents an interesting "get paid while you wait" opportunity. Here's why:

1. Price to book ratio of .79 and one year sales growth of 42.5%

2. The history of the dividend is solid. The lowest quarterly payout over the last 10 years was in Q4 2008 in the depths of the crisis and it was 0.25 per share or a $1.00 annual rate. Even assuming they cut the dividend 50% to this rate it would still be a solid 8.4% yield.

3. The projected earnings of $1.17 per share more than support a dividend payout of a $1.00 and cash flow from operations with cash on the balance sheet also would be sufficient.

4. They have surprised to the upside on the last two earnings reports and also have raised additional capital through a recent share issuance.

5. Knightsbridge has two ships with leases expiring this year, one this month (Hampstead) and one in August (Camden), meaning Knightsbridge will have three of four tankers in the spot market, currently running around $27K/day with the current VLCC FFA (very large crude carriers forward freight agreements) market under $15K for the next two years. We can estimate a revenue cut of $1 million/quarter for Q1-2, widening to $2 million/quarter ($0.08/share) by end of year. A bit of caution: Investors could see 30-40% dividend cut if they can't find above-market-rate charters. This is a cyclical business and I think they can weather the downturn in shipping rates. (Source: Presentation of fourth quarter 2011 results.)

6. From a technical standpoint, current levels also look to be up against longer term support, so if we can hold in and around $10-$12, I will be a buyer.

I recently started a long position in Knightsbridge and will continue to add to it in the short to medium term.

Editor's note: Joshua Schroeder is an independent investor based in La Paz, Mexico. This article originally appeared on investing and economics site, See It Market.
Position in VLCCF
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