SFL Corporation Ltd (SFL)

Company Profile:

Detailed history and Background of SFL Corporation Ltd.:

• Founded in 2003 by Ole Hjertaker and Idar Vollvik.
• Headquartered in Bermuda, the company went public on the NYSE in 2005
• Initially owned and operated oil tankers but shifted to operating containerships in 2008 due to a slowdown in oil transportation and the higher profitability offered in the containership sector
• The company primarily focuses on operating modern and fuel-efficient vessels via time charters, which represent the majority of their revenue.
• Owns a diverse fleet with 81 containerships and six oil tankers as of November 2023.

Description of the Company's Core Business Areas:

SFL's primary focus is the operation and leasing of modern fuel-efficient container vessels: - It earns revenue through Time Charters, where they rent their ships for a fixed duration to other companies, receiving payment based on the agreed rate and time period. - They also have Charter parties, which involve carrying specific cargo to a particular location at an agreed price.

Overview of the Leadership Team and Corporate Structure:

Management Board:

• Chairman and Chief Executive Officer (CEO): Idar Volviv
• Chief Financial Officer (CFO): John A. Skarsgard
• Head of Operations and Asset Management: Eirik Eide
• Chief Technical Officer (CTO): Andreas Walle

The company's corporate structure consists of: - A Board of Directors responsible for overall strategy and direction - A Management Board overseeing the daily operation and executive decisions

Top Products and Market Share:

Identification and description of SFL Corporation Ltd’s Top Product Offerings:

• Modern fuel-efficient containerships: Ranging in size and capacity to cater to diverse market demands.

Analysis of Market share:

• SFL is not the largest containership owner in terms of vessel count.
• However, their focus on fuel efficiency positions them well in a market increasingly prioritizing environmental concerns and cost savings.
• Their market share can be best measured by their Time Charter equivalent (TCE), a metric indicating daily earnings.
• As of Q3 2023, their average daily TCE was $20,500, reflecting strong market receptivity and competitive pricing.

Comparison with Competitors:

SFL faces stiff competition in the containership space from companies like Costamare (CMRE) and Danaos Corporation (DAC), both with larger fleet sizes. However, SFL's modern and eco-friendly fleet offers potential advantages in attracting long-term charters.

Total Addressable Market:

The global containership industry is vast, representing over 90% of global traded goods. This market witnessed significant growth during the pandemic-driven surge in online shopping, leading to increased demand and higher charter rates. While growth has normalized in 2023, long-term projections indicate continued expansion due to rising global trade volumes.

Financial Performance:

Detailed Analysis:

Recent Financial Statements:

• Revenue: Q3 2023: $200.9 Million, representing an increase of 22.2% year over year
• Net Income: Q3 2023: $29 Million
• Profit Margin: Q3 2023: 23%
• EPS: Q3 2023: $0.30

Financial Perfromance Comparison:

• Revenue has steadily increased over the past year, demonstrating strong performance and capitalizing on favorable market conditions
• Profit margins are healthy and improving, reflecting efficient vessel operation and lucrative charter agreements.
• The EPS has doubled compared to Q3 of 2022, indicating strong profitability.

Cash flow Statements and Balancesheets health:

SFL boasts a healthy balance sheet with strong cash reserves and low debt. The company has been adeptly navigating potential financial risks.

Dividends and Shareholder Returns:

Dividend History:

SFL maintains a dividend policy, aiming to distribute at least 85% of net income after tax. The recent annualized dividend payout is $1.28 per share, representing an attractive yield of around 5%.

Shareholder Returns:

Over the past year and 3-years, the company's share price performance has significantly exceeded broader market indexes, demonstrating strong shareholder returns.

Growth Trajectory:

Historical growth:

SFL has experienced consistent and robust growth in its financials over the last 5-10 years, primarily driven by fleet expansion, secure time charters, and rising market demand.

Future growth projections:

SFL plans on further fleet renewal and expansion, focusing on adding larger container vessels and potentially entering the tanker market again. The company also seeks opportunities to diversify its income through vessel management services. These strategies suggest continued strong future growth potential.

Market dynamics:

The containership industry faces a dynamic landscape:

• Current Trends: Growing global trade, increasing focus on environmental efficiency, technology advancement in vessel design, and the emergence of alternative fuels

• Supply-Demand Scenario: While demand remains high, supply chain bottlenecks, port congestions, and rising fuel prices pose challenges.

SFL's Positioning:

The company is well-aligned with current trends, focusing on sustainability and fuel-efficiency, enabling them to secure favorable contracts.

Its adaptability is further demonstrated through exploring opportunities in the LNG segment and potential reentry into oil tankers, reflecting its proactive strategy in navigating market shifts.

Competitors:

Competitor	Stock symbol	Market Share %
Costamare Inc	CMRE	8.5
Danaos Corporation	DAC	5.2
Seaspan Corporation	SSW	4.8
ZIM Integrated Shipping	ZIM	3.8
Euronav	EURN	2.9

While these companies have larger fleet sizes, SFL holds its ground with a modern, efficient, and diversely chartered fleet, attracting attractive contracts.

Potential challenges and Opportunities

Key challenges

• Supply Chain disruptions and port congestions
• Economic slowdown leading to reduced cargo volumes
• Fluctuating fuel costs and the transition towards alternative fuels

Opportunities

• Expansion of the container fleet with focus on larger and fuel efficient vessels
• Entry into new market segments like the LNG sector or a return to the oil tanker market
• Development of innovative technologies and partnerships

Recent acquisitions (Last 3 years)

SFL actively pursues acquisitions to enhance its fleet and market positioning:

• April 2021 - Acquired 2 x 12,200 teu newbuild containerships for $224 million each
• May 2021 - Purchased 4 eco-design 7,984 TEU newbuilds for a combined price of approximately $248.8 Million
• August 2021 - Agreed on the purchase of three 15,584 teu newbuild container vessels at a total cost of approximately $295.2 Million
• December 2021- Purchased one scrubber-fitted VLCC (Very Large Crude Carrier) tanker for $85 million.
• February 2022 - Exercised purchase options for two additional Scrubber fitted eco design VLCCs at $95.0 Million per ship
• April 2022 - Exercised an option for one eco-designed VLCC at a cost of $97 million
• May 2023 - Entered an agreement to purchase a 2001 built, scrubber fitted VLCC for a price of approximately US$35 million

These strategic acquisitions align with the company’s goals to acquire modern and fuel-efficient vessels, further solidify their market presence, and cater to the growing demand in the containership sector.

AI-Based Fundamental Rating:

Rating: 8.5 out of 10 Justification:

• Strong Financial position: Healthy balance sheet, rising revenue and profitability, impressive EPS growth.
• Positive Market position: Well positioned to capitalize on sector trends, modern and efficient fleet, strong charter agreements, diverse market presence,
• Future Growth Potential: Solid plans for fleet expansion, diversification strategies, entry into new market segments.

Disclaimer:

This information is provided for general informational and educational purposes only. It does not represent investment advice and is not a recommendation or solicitation to buy or sell any specific security or pursue a particular investment approach.

Sources:

• Company Website: www.SFLcorp.com
• Financial Statements: SEC Filings
• Market Data: Yahoo Finance, Tradingview
• Market Reports: Statista, IMF, OECD

Note: This overview reflects data and analysis up to November 2023.