Seaspan: Smooth Seas Ahead?

04/01/2014 8:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

Jack Adamo, editor of Insiders Plus, sees smoother sailing ahead for this shipping firm; in his high yield portfolio, the advisor recommends a position in the company’s preferred shares.

Predictably, Seaspan (SSW) suffered a big drop in normalized EPS for 2013, due to the conversion of all its Class A preferred stock to common stock, plus another secondary common stock offering, which, together, increased the common stock share count by 33%.

Additional preferred share issuance also impacted earnings to common shareholders. At $0.92 per share, 2013 full-year EPS came in $0.30 lower than 2012.

The extra capital raised is for a good cause, since the company's order book for large, energy-efficient, newly built container ships is growing fast. Seaspan expects to take delivery of 16 vessels within the next two years. As always, they are already contracted to long-term charters.

I've voiced my concerns already about the overweighting of the company's customer list to shippers owned, or partly owned, by the People's Republic Of China, so I'm happy to see that all the new orders are for companies from Japan, Korea, and Taiwan.

This will reduce the chance of country-specific conditions materially impacting Seaspan's earnings. The chance was small in any case, but I still like to see this diversification of customers.

That said, I remain more comfortable for now being in Seaspan's preferred stock. We may be missing out on considerable future growth, but I suspect that the world stock markets will have a substantial pullback in the next year or two and we'll be able to pick up the common at that time at its current price or lower.

Moreover, with a little more wake behind these ships, we will be able to better assess the company's prospects in the world's slowly healing economy.

Industry conditions indicate that older, smaller, less fuel-efficient vessels will be scrapped over the next few years. That should be good for Seaspan, which has the most fuel-efficient fleet in the world.

Overall, the outlook is good and the risk-to-reward profile very positive. I hope we will have an opportunity to buy the common sometime next year with a clearer horizon.

In the meantime, the Seaspan Corporation 7.95% Series D Cumulative Redeemable Perpetual Preferred Shares (SSW-PD) are still within our buy range. We are adding this preferred to our High Income Portfolio.

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