On Wednesday, Ship Finance International (NYSE:SFL) saw an increase in its price target to $15.00 from $13.00 by BTIG, while the firm retained a Buy rating on the company's shares. This adjustment follows Ship Finance's announcement of acquiring three newbuild Long Range (LR) product tankers for a total of $230 million, approximately $77 million per vessel, from an affiliate party. These tankers are scheduled for delivery between the second and fourth quarters of 2024.
The price paid for these vessels represents a 10% premium compared to new-build purchases earlier in the year, which are not expected for delivery until 2026. The acquisition is seen as beneficial due to the earlier delivery dates, providing Ship Finance with additional cash flow during what is considered an exceptionally strong cycle for LR2 tankers. The analyst noted that the purchase price appears to be in line with or slightly below the going rate for 2024 LR2 tankers.
Each of the three tankers comes with a five-year time charter, including options, which is anticipated to contribute approximately $200 million to Ship Finance's revenue backlog. This increase would bring the company's total backlog to an estimated $3.4 billion, up from approximately $3.2 billion in the previous quarter.
The five-year charters are estimated to generate vessel EBITDA (earnings before interest, taxes, depreciation, and amortization) of about $11 million per ship, indicating that the vessels were acquired at approximately 7 times EBITDA.
The analyst expects that, depending on the terms of financing, the acquisition should yield a low to mid-teens return. This strategic move by Ship Finance International is thus seen as a positive step, enhancing the company's asset base and future earnings potential, as reflected in the upgraded price target for the company's stock.
InvestingPro Insights
Following the recent strategic acquisitions by Ship Finance International (NYSE:SFL), the company has garnered attention with an upgraded price target. Alongside these developments, InvestingPro data and insights provide further context into the company's financial health and market performance.
According to InvestingPro data, Ship Finance International boasts a market capitalization of $1.63 billion, underscoring its significant presence in the shipping industry. The company's gross profit margin stands at an impressive 60.53% for the last twelve months as of Q4 2023, reflecting efficient operations and a strong ability to generate income from its revenue. Furthermore, Ship Finance has demonstrated a robust return over the last year, with a 53.33% price total return, indicating a bullish trend for investors.
Two InvestingPro Tips particularly relevant to the article are the company's consistent dividend payments for 21 consecutive years and its low price volatility. Ship Finance's commitment to dividends exemplifies its financial stability and shareholder-friendly policies, while low price volatility suggests a resilient stock that may appeal to investors seeking less risk in their portfolios.
For readers interested in obtaining a comprehensive set of InvestingPro Tips and insights, including the ones mentioned above, visit https://www.investing.com/pro/SFL. There are additional tips available, such as the company's profitability predictions for this year and its strong performance over the last three months. To access these insights and more, use the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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