Ship Finance Int’l Ltd.

[[SFL]] is a major ship owning company listed on the New York Stock Exchange. Including newbuildings and announced acquisitions, the Company has a fleet of 73 vessels, including 35 crude oil tankers (VLCC and Suezmax), 2 chemical tankers, 8 oil/bulk/ore vessels, 13 container vessels, 3 dry bulk carriers, 6 offshore supply vessels, 3 seismic vessels, 2 jack-up drilling rigs and one ultra-deepwater drillship. The fleet is one of the largest in the world and most of the vessels are employed on long term charters.

[[SFL]] started as a pure tanking company in 2004. For all the OBOES or oil boat ore vessels, combination vessels that can trade both in wet and dry are all trading in the tanker market.

The growth in the Company has been executed without issuing equity and this has primarily been fueled by the profit share from Frontline Ltd [[FRO]], which has been very substantial over this period.

The growth into bulk container in offshore has only been over the last two years. Over time, the company expects to see a further balancing of all these segments and particularly container and offshore are viewed as very interesting growth areas for them, currently.

SFL can target several segments, they [sic] don’t need to only focus on one segment and they [sic] can look to do the best deals available across these segments and across the market cycles in these segments.

….. in the current market environment where financing is becoming more challenging to put together for many companies, you see an increased deal flow and also very good access to transactions.

The company is well funded to grow as they still have surplus capital for investments and think they can generate very interesting new projects going forward.

“We have a unique order backlog and companies with large charter backlogs typically have five to seven years coverage. We are in a different league with 13.5 weighted average charter coverage. This is $5.6 billion or $77 per share while the EBITDA from this charter backlog is around $61 per share. These numbers are, of course, before profit share and does not include any REIT-chartering after the end of the current charters.”

Re The Credit Environment: From the Q4 Earnings Call Transcript

“We see a very good financing market for us and I think what we have seen in a way is the polarization of the market where the strong companies, where the strong balance sheets still have good access to capital while other less strong companies and maybe more project related companies are struggling a lot finding capital. With our balance sheet and the leverage against our assets, I think it is fair to say that the banks view us [sic] as a very strong credit.”

“Just as an illustration, the fleet on charter to Frontline, the asset value representing those vessels is in the region of $3.5 billion. While we have outstanding secure debt against those vessel in the region of $1.3 billion and there is significant buffer there and this is exactly what the bank are looking for, strong companies that can survive a potential downturn in the market.”

With Re to Growth:

“We have several new projects (one of which is reported below), which have been financed from stand-alone basis but no over limited recourse to the company [sic]. This improves our investor position and of course the risk for us [sic]. Our focus is to continue diversifying our fleet and customer base on this basis.”

“We do have significant capital available as equity in new projects reported $79 million of net cash per year-end, which included $1.1 million of cash and a 100% owned subsidiary, which is not consolidated based on U.S. GAAP.”

“We will also receive $52.5 million of profit share from Frontline for the year 2007, which is payable in March of this year.” [Note: this is amortized qtrly]

“We have announced the sale of single-hull vessels and the two vessels that are scheduled to be delivered in the first quarter of 2008 is estimated to give us a net proceeds of $40 million after paying compensation to Frontline and paying down the debt associated with these vessels. We also have $84 million available under revolving credit facility. On top of this, we have several vessels without any loans attached and we estimate that we could borrow the region of 150 to $200 million against these assets if we would like.”

Recent Announcements:

5/10/08 …..

“The company has entered into an agreement to acquire the newbuilding ultra-deepwater drillship West Polaris, from a subsidiary of Seadrill Limited [[SDRL.OL]]. With a total acquisition cost of approximately $850 million, this is a record-breaking sale/leaseback transaction in the maritime industry. The vessel is expected to be delivered end of June 2008 from Samsung Heavy Industries in South Korea, and will be chartered back to the seller for 15 years on a bareboat basis, fully guaranteed by Seadrill. The $700 million loan facility will have a 5 year term and the average annual repayment of debt will be approximately $65 million per year in this period. The average annual net cash contribution, after estimated interest expense and debt repayment, will be approximately $23 million, or $0.32 per share.”

Seadrill said that if it carried out similar financing deals for all eight of its deepwater units due for delivery this year, it would release more than $4 billion in cash. If SFL were to provide that financing they could potentially add another $2+/sh to future annual earnings!

One could project current and forward earnings per share from $3.25 this year to a range of $5.00-5.25 next year with a P/E of 20 (conservative based on 35% current growth) this would project to a share price of $65 this year and $105 next …..

Yikes, someone check my math …. there must be a discount applied for lease/sale financing companies or else this is a potential 2-3 bagger!!! Better compare SFL to another entity ….

Genesis Leasing [[GLS]] is in a similar business specializing in aircraft and is currently trading with a P/E ratio of 14-15 with growth rates of 8% and 12% this year and next. SFL is currently trading with a P/E of 14 and a growth rate of 35% this year and -12% next.

Of course if a deal for any of those additional 7 or 8 drillships due for delivery this year to Seadrill were to be added to the current order, that -12% would change in a hurry and upgrades would be forth coming.

Opinion: (Mine … Get your own you lazy internet bastards with 4figure disct brokerage accts!!!)

Not unlike Dryships [[DRYS]], this is a welcomed diversification into deepwater drilling (although Seadrill [[SDRL.OL]] is a closely related entity to Frontline [[FRO]] so deals with other drillers and shippers would also be welcomed and lessen dependency on FRO and John Fredriksen) to go along with jack-ups, seismic vessels, tankers, dry bulk carriers, container ships and offshore supply vessels.

Profit sharing nearly tripled from q3/07 ($5.5 million) to q4/07 ($16.1 million) and is very robust even when in a very slow market. For the last 3 qtrs of 07′ the avg day rate was $60,000 and this year they are averaging $100,000 for modern vessels. Frontline sub charters all remaining single hull tankers and oil boat ore vessels to third parties which contributes to the profit sharing agreement. Last qtr earnings came in at $.72/sh and this qtr are estimated at $.85 or about 20% growth Q over Q.

With new contracts, increasing day rates contributing to profit sharing, a plethora of opportunities to purchase and lease new ships and rigs due to the current credit crunch as well as impending delays due to construction bottlenecks and increased costs, SFL is in position to grow earnings and dividends while adding desirable assets to the balance sheet (for future lease/sale) at the expense of those who have already contracted for these behemoths or need to and find that their hands are tied.

This could be a nice swing trade if there is an earnings surprise (although it is up about 25% since March) and/or analyst upgrades following the earnings report. Or it could fit in nicely as an income producing stock for a longer term account. This may be a good way to prosper from the current shipping trends by spreading risk rather than betting on one sector or company that has traditionally proven to be very volatile.

The Q1 earnings report is slated for Thursday 5/22 at 10 am (EST) but they could release data Wed AH or Thurs BH so plan accordingly if you want to play the report …..