Earnings Call: SFL Corporation Reports Strong Performance in Q3 2024 with a 10% Dividend Yield
In the third quarter of 2024, SFL Corporation (NYSE: SFL) reported strong financial results with revenues exceeding $260 million and a net profit of approximately $45 million, or $0.34 per share. The company declared its 83rd consecutive dividend of $0.27 per share, offering a robust return of about 10%. The fixed-rate order book was reported at approximately $4.7 billion, a significant portion of which comes from investment-grade customers. SFL's fleet expansion continues with the delivery of seven new vessels and orders for five new large container ships under ten-year charter agreements.
Key Points:
SFL Corporation's revenues surpassed $260 million, and EBITDA-equivalent cash flow was approximately $167 million. Net profit rose from the previous quarter to around $45 million or $0.34 per share. The company announced its 83rd consecutive dividend of $0.27 per share, providing an approximate 10% yield. SFL's fixed-rate order book stands at around $4.7 billion, primarily from investment-grade clients. The fleet expanded to 81 vessels, including the addition of seven new ships and an order for five large container vessels. Operating costs increased to about $32 million due to the full operational costs of the Hercules drilling platform and new vessel deliveries.
Company Outlook:
SFL is focused on expanding its fleet with modern, eco-friendly designed vessels to be delivered by 2028. The company is strategically phasing out older, less fuel-efficient container ships to enhance overall fleet fuel efficiency. The Hercules drilling platform is expected to start generating revenue in the fourth quarter following its mobilization to Norway.
Negative Points:
Contract revenues dropped to approximately $70 million from $90 million in the previous quarter. Operating costs significantly increased due to the full operational costs of the Hercules drilling platform and amortized mobilization costs.
Positive Points:
Adjusted EBITDA rose from about $131 million in the previous quarter to approximately $167 million. The company successfully issued bonds worth 750 million Norwegian kroner at a 3.25% coupon rate by refinancing its existing debt. SFL secured approximately $1 billion in financing this year and utilized $700 million during the quarter.
Underperforming Points:
According to US GAAP, total operating income was reported at approximately $255 million, which is lower than the $263 million in gross charter revenue.
Q&A Highlights:
Operating expenses currently average around $200,000 per day and can potentially be significantly reduced to a secure target of $75,000 to $100,000 daily between contracts. The company sold a 2005-built 1,700 TEU container ship leased to Maersk and is evaluating the re-leasing or sale of other older vessels.
SFL Corporation's third-quarter results demonstrate the company's ongoing financial growth and strategic fleet management. With a strong dividend yield and a significant order book, SFL continues to focus on enhancing its fleet's fuel efficiency and operational capabilities. The company's proactive approach in capitalizing on market opportunities and managing operational costs emphasizes its commitment to value creation for shareholders.
InvestingPro Insights:
SFL Corporation's strong financial performance in the third quarter of 2024 is further highlighted by significant metrics obtained from InvestingPro. The company's impressive 62.99% gross profit margin for the twelve months ending in the second quarter of 2024 aligns with the robust EBITDA and revenue growth indicated in the earnings report, underscoring operational efficiency.
An InvestingPro tip emphasizes that SFL has maintained uninterrupted dividend payments for 21 years, consistent with the company's announcement of its 83rd consecutive dividend. This long-term commitment to shareholder returns is reflected in the reported current dividend yield of 10.08%, making it an attractive option for income-focused investors.
The company's 18.81% revenue growth over the twelve months ending in the second quarter of 2024 supports the narrative of fleet expansion and increased operational activities mentioned in the earnings report. This growth trajectory is particularly notable when considering SFL's market capitalization of $1.41 billion.
It is worth noting that SFL is trading with a trailing P/E ratio of 11.17 for the last twelve months. An InvestingPro tip suggests that the company is trading with a high P/E ratio relative to its near-term earnings growth, indicating that investors may be pricing in the company's future growth expectations, including new vessel deliveries and long-term charter agreements.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional insights that can provide deeper perspectives on SFL's financial health and market position.