SFL Corporation Ltd (Hold, TP: USD10.80) - Risk/reward points to fair value
We see the current DPS capacity supported by a solid contract backlog with strong counterparties, with further build potential, as shown by the >USD2bn added YTD. However, as Hercules ended its employment, we see utilisation risk, with an idle rig leaving ~USD30m annual cash burn. However, we model a sustained USD0.27 DPS, assuming 70% utilisation at current rates, or alternatively the asset being divested to clear outstanding debt. Hence, we believe the operational risk is balanced by possible monetising of the asset. We reiterate our HOLD, but have cut our target price to USD10.8 (12.5).
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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