Knightsbridge Tankers, Ltd. (VLCCF), the crude shipper, is still generating healthy cash flow even as the global economy stumbles. The company is paying a dividend yielding 6.00%. The stock is cheap. VLCCF is trading at only 4.7x forward earnings.

Company Description

Knightsbridge Tankers transports crude oil worldwide with a fleet of 4 double-hull crude oil carriers.

Generating Cash in the 4th Quarter 2008

On Feb 6, Knightsbridge reported fourth-quarter and full year 2008 results which met analysts estimates for the fourth quarter of 45 cents per share. Net income was $7.8 million.

The average daily time charter equivalents (“TCEs”) earned by the company’s 4 VLCCs fell to $43,900 from $52,800 in the prior quarter.

Cash increased by $3.3 million as Knightsbridge generated $14.7 million from operating activities. It distributed $8.6 million in dividend payments, invested $0.6 million in its newbuilding project and used $2.2 million to repay loan and credit facilities.

As of February 2009, the company had an average cash break even rate for its vessels of $19,300 per vessel per day compared to $19,410 in the year ago period.

For the full year 2008, net income fell to $48.1 million, or $2.81 per share, from $84.8 million, or $4.96 per share in 2007. However, 2007 included a gain of $49.1 million, or $2.87 per share, from the sale of a vessel.

The average daily TCEs were higher in 2008 at $52,600 compared with $41,700 in 2007.

Still Paying a Hefty Dividend

On Feb 5, the board declared a dividend of 25 cents per share payable on March 2. While the fourth quarter dividend payment was cut from the third quarter’s dividend of 50 cents per share, the current yield is still 6.00%.

The company attributed the dividend cut as taking a conservative stance due to the worldwide credit crisis and the company’s need for financing for a portion of its remaining installments coming due on the 2 newbuildings. It is unclear what level of debt financing may be available.

For 2008, Knightsbridge increased its dividend by 10% to $2.75 per share from $2.50 in 2007.

2009 Outlook

Knightsbridge has its VLCC fleet fixed on time charters which expire between 2009 and 2012. One of the ships will be redelivered from the charterer in March 2009. The company is evaluating plans for the vessel Incorporatedluding employing it in the spot market prior to a new long term agreement.

Two Capesize bulk carriers are also under construction for a total contract price of $162 million. $48.6 million has been paid on the ships to date. Delivery is expected in 2009 although the company believes there is a possibility they will not be delivered on time. Long-term time charters have already been obtained on the ships.

Value Fundamentals

Knightsbridge Tankers is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of only 4.69. Its price-to-book is 1.19. The company has a stellar 5-year average return on equity (ROE) of 26.75%.

Content Courtesy: Zacks Investment Research

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