Box Ships (NYSE:TEU)

CAPS Rating: 2 out of 5

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Player Avatar Cmoor (97.81) Submitted: 11/22/2012 11:46:04 AM : Outperform Start Price: $4.63 TEU Score: -54.40

Box Ships is a lessor of midsize container ships. It currently has nine ships in its fleet. Most of its leases are for multiple years, assuring its cash flow. Its business plan is to lease them to ship operators on essentially triple net leases--think of a building owner renting office space with the tenant paying not only rent, but utilities, maintenance, taxes, etc. Box Ships calculates its lease rates to cover its ship acquisition debt and cost of money, plus its desired rate of return. Since it acquired its first seven ships at favorable costs and its next two ships with proceeds of a secondary equity offering, it appears quite likely that it can keep its fleet leased at near capacity. The company's CEO projected that it will be able to continue its dividend distribution at a level of at least $.88 to $1.00 for the next couple of years. At a current price of $5.10 per share, that is a dividend rate of at least 17.3%. Are there risks to its business model? Sure. It's a Greek based company, but most of its banking relationships are with US and European banks. It recently did the secondary offering to raise cash for the two new box ships acquisition at a discount to its original IPO. The shipping industry, generally, is in a slump, but the midsize container ship segment is not overbuilt and appears stable. The company does careful underwriting of the financial condition of its lessees. Given all that, the risks to execution of its business model appear reasonable--and you are certainly being paid well at 17% for taking them. I think the reason the dividend is so high is that the market is missing the inherent value in the company. If I am correct, there should be significant increase in the price as the market recognizes the value of that relatively secure dividend stream. Buying this undervalued company could give you the "twofer" of a fat dividend while you wait for the capital gain.

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