Table of Contents
Note: This article is an update of my article published on May 18, 2022. I have followed EGO’s quarterly on Seeking Alpha results since Sept. 2014.
1 – 2Q22 Results Snapshot
SFL reported a quarterly income of $0.45 per share compared to $0.16 per share in the same quarter a year ago.
It was another solid quarter with a new record in revenues. The company’s total U.S. GAAP operating revenues on a consolidated basis were $153.297 million in 2Q22, compared to $152.39 million in the previous quarter.
Note: This figure is lower than the cash received as it excludes revenues from charter hire, which are not identified as operating revenues under U.S. GAAP. More details later in this article. The cash revenues received in 2Q22 were $166.525 million.
The company increased its quarterly dividend to $0.23 per share this quarter. The dividend yield is now 8.12%.
Adjusted EBITDA on a consolidated basis was $123.57 million, up from $102.72 million posted the same quarter a year ago.
Its fleet comprises 75 ships or drilling rigs – wholly or partly owned vessels.
CEO, Ole Hjertaker, said in the press release:
The dividend has now been increased for four consecutive quarters, and approximately $2.5 billion has been returned to our shareholders since 2004. We aim to continue investing in new accretive assets and build our charter backlog supporting our long-term dividend distribution capacity»
2 – Investment Thesis
What I like the most about SFL’s business model is its versatility, giving a superior advantage in the shipping segment. A few days ago, CEO Ole Hjertaker said, I share this idea.
Shipowners with fleets that are focused on one segment do not have a bright future ahead of them, according to SFL Corp chief executive Ole Hjertaker. He said such owners, which make up a majority of US-listed shipping names, are doomed financially because they usually buy the wrong ships when banks are most willing to finance acquisitions.
I have owned SFL for many years, and it has been an outstanding long-term investment supported by a high-secured backlog.
Ole B. Hjertaker, CEO of SFL Management AS, said in the press release:
We are pleased to report another strong quarter as we continue to renew, grow and diversify our portfolio. So far in 2022 we have added approximately $1.3 billion to our fixed-rate backlog, with several new bluechip customers, such as Trafigura, Hapag-Lloyd, ConocoPhillips and most recently Koch Industries, with the addition of four modern, eco-design vessels.
Thus, the investment thesis continues to be the same as my preceding article, and I recommend SFL as a long-term investment.
However, I suggest trading short-term SFL using at least 30% of your entire position to profit from your investment. This two-level strategy has prevailed in my marketplace, “The Gold and Oil Corner,” and I believe it is the most rewarding.
Note: Only US investors can use LIFO, and for those in Europe and Canada, you will have to find another way of taking advantage of the short-term volatility. Please read my note at the end of this article.
3 – Stock Performance
The shipping industry has rallied recently, with signs of an improving outlook that is getting stronger this quarter.
SFL jumped significantly after raising the quarterly dividend again this quarter to $0.23 per share. SFL is up 58% on a one-year basis. However, it has underperformed its peers, especially STNG, up 164% more specialized in the Tankers segment.
SFL Corp.: The Raw Numbers: Second Quarter Of 2022 And Financials History
|Total Revenues in $ Million||116.76||135.45||152.06||152.39||153.30**|
|Net Income in $ Million||19.53||33.21||80.12||47.02||57.41|
|EBITDA $ Million||77.47||57.88||104.42||117.10||131.91|
|Adjusted EBITDA in $ Million||102.72||112.26||121.30||119.01||123.57|
|EPS diluted in $/share||0.16||0.26||0.63||0.37||0.45|
|Operating cash flow in $ Million||61.96||77.14||91.50||81.51||85.20|
|CapEx in $ Million||15.61||411.38||146.80||186.74||8.12|
|Free Cash Flow in $ Million||46.36||-334.24||-55.30||-105.24||77.08*|
|Total cash $ Million||
|Long-term debt in $ Million||1,682||2,000||1,889||2,026||1,964|
|Dividend per share in $||0.15||0.18||0.20||0.22||0.23|
|Shares outstanding (Basic) in Million||126.26||156.06||128.79||126.79||126.79|
Source: SFL release
* Estimated by Fun Trading
** Gain on sale of assets and termination charter is not included and was $13.23 million in 2Q22.
Analysis: Revenues, Earnings Details, Free Cash Flow, And Backlog Discussion
1 – Operating revenues were $153.30 million in 2Q22
1.1 – Revenues and others
SFL Corp. received a charter hire of approximately $166.53 million from the Company’s vessels and rigs, including $13.23 million in Gain on the sale of assets and termination of charters.
The company had $54.41 million in income for the second quarter of 2022, or $0.45 per share.
Adjusted EBITDA was $123.57 million, up 20.3% from last year.
1.2 – Highlights during 2Q22
- 74th consecutive quarterly dividend declared $0.23 per share.
- Net profit of $57.4 million, or $0.45 per share in the second quarter.
- Received charter hire of approximately $164.9 million in the quarter from the Company’s vessels and rigs, including $5.2 million of profit share.
- Adjusted EBITDA2 of $115.8 million from consolidated subsidiaries, plus an additional $7.8 million adjusted EBITDA2 from associated companies
- Sale and delivery of two 2004 built VLCCs, and a 2003 built feeder containership in the quarter, generating approximately $13.2 million in book gain.
- Agreement to acquire four modern Suezmax tankers in combination with 6-year charters to a subsidiary of Koch Industries, a world-leading industrial conglomerate
Note: source press release.
1.3 – The quarterly dividend increased to $0.23 per share in 2Q22
It is still a historical low for the company, but we see definitive progress on this side, with a yield now of 8.1%.
In the press release:
The Board of Directors has declared a quarterly cash dividend of $0.23 per share. The dividend will be paid on or around September 29, to shareholders on record as of September 15, and the ex-dividend date on the New York Stock Exchange will be September 14, 2022.
2 – Free cash flow is $77.08 million in 2Q22
Trailing 12-month free cash flow (“ttm”) is a loss of $417.70 million, with a free cash flow estimated at $77.08 million in 2Q22.
The loss in free cash flow can be explained by the significant CapEx used by the company to expand and adapt. In this case, the loss is not necessarily a negative. However, the company should lower CapEx in the next few quarters as it did in 2Q22.
3 – Debt analysis: Net debt is estimated at $1.724 billion in 2Q22
we announced the acquisition of 4 modern eco-design Suezmax tankers. Purchase prices agreed to $222.5 million and we expect to take delivery of the vessels very shortly and within the next 2 months. Concurrently, we have agreed to charter the vessels to a subsidiary of Koch Industries, an investment grade U.S.-based industrial conglomerate. The transaction is adding $250 million to a fixed rate charter backlog
4 – Segment Analysis
4.1 – The offshore segment. Seadrill has emerged from bankruptcy
On February 23, 2022, we learned that Seadrill has emerged from Chapter 11.
SFL owns two HE rigs. The semisub West Hercules and the support jack-up West Linus have been chartered to Seadrill since 2008 and 2014.
During the second quarter of 2022, SFL received a charter hire of $9.6 million from the rigs.
However, in connection with Seadrill’s emergence from Chapter 11 in the first quarter, it was agreed that the drilling contract for West Linus with ConocoPhillips Skandinavia AS will be assigned from Seadrill to an SFL subsidiary. The change will be effective in the third quarter of 2022.
4.2 – SFL dry bulk segment
The Company had 15 dry bulk vessels with ten vessels employed on long-term charters. These vessels generated approximately $31.3 million in gross charter hire during the second quarter, including $1.4 million in profit share.
The five vessels employed in the spot and short-term market contributed approximately $13.4 million in net charter hire during the second quarter, compared to roughly $8.0 million in 1Q22.
4.3 – Tankers segment
SFL has 16 crude oil, product, and chemical tankers, mainly operating in long-term charters.
The segment generated about $35.2 million in gross charter hire in 2Q22.
SFL operates two Suezmax tankers trading in the spot market with a net charter hire of $6.6 million in 2Q21.
4.4 – Liners segment
SFL owns a liner fleet of 34 wholly- or partly-owned container vessels and six car carriers. The liner fleet earned about $88.9 million in gross charter hire in 2Q22, including a $3.8 million profit share from fuel savings. 93% of the gross charter hire came from vessels on long-term charters, and the remaining were from short-term charters.
Technical Analysis (Short Term) And Commentary
Note: The graph has been adjusted for the dividend.
SFL forms an ascending wedge pattern with resistance at $11.4 and support at $10.7. However, the RSI signals an overbought situation, which means a breakout is not very likely, and it is important to take about 20% off at or above $11.4.
The overall strategy that I regularly promote in my marketplace, “The Gold And Oil Corner,” is to keep a core long-term position and utilize about 35% to trade LIFO (see note below) while waiting for a higher final price target for your core position between $14 and $16.
The trading strategy is to sell ~35% above $11.4 and wait for a retracement below $10.7 with a lower support potential at $9.80.
Note: The LIFO method is prohibited under International Financial Reporting Standards (IFRS), though it is permitted in the United States by Generally Accepted Accounting Principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by setting two different accounts for the same stock, one for the long term and one for short-term trading.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
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