CH Offshore announced their Q3 results. Results here.
- Revenue was weaker falling by 8.7% due to lower contribution since they sold of a vessel and some vessels were in repair
- Net Profit was higher due to a one time US$3.9 mil ship sale gain. Absence of that net profit would have been the same as last year
- There was a larger contribution from their share of associated companies
- Cash holding increases to US$67 mil from the sale of ships
- Due to the sale of ships their non current assets are down from US$188 mil to US$179 mil
- The group will be affected by the loss of the expiry of 2 long term contracts. These are 12BHP ships contracted in 2008 at the lucrative rates. Failure to charter them out at good rates will mean a reduction of revenue.
- CH Offshore is current trading at SGD$0.46 which is near its NAV per share of SGD$0.43. The current payout ratio is almost 50% of last years net profit. I don’t think CH offshore will not be able to pay this dividend but they may want to reduce it to be conservative. Lets just say their cash can allow them to pay 4 years of current dividends if they are breaking even.
Some have asked me whether I will be buying or selling, CH Offshore have ran up a fair bit. I still think this is a cyclical dividend play. If you buy in now you are likely buying when the cycle hasn’t turn up and buying into a stock that is conservatively managed.
The metrics to watch are pretty similar to REITs.
- Whether CH Offshore can charter at a higher rate. Management say OSV market picking up but rates are not at 2008 level. This looks negative.
- The quality of assets. CH Offshore has a young fleet, which should command more market value in the event of liquidation. They should be able to operate in a better condition.
- Debt levels. In CH Offshore’s case the lack off. Using debt is a skill in itself, and we want to see CH Offshore’s management willing to get into debts and buy ships at low prices in anticipation for market pick-up
- Operation and Risk Management. In the aftermath of the GFC and FSL Trusts problems, whether it is REITs or shipping trusts or charterers, they are essentially asset managers and the skill of the asset managers are very important. The old hands would have been through many ups and downs and their actions will tell us in the long haul whether they are able to sell ships at the peak and buy ship and good prices, at the same time tie contracts with shippers to provide a more secure cash flow.
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