August 11, 2010
Navios Maritime Partners (NMM)
Written By Gregory Spear
This month’s Spotlight Investment was recommended by two of our contributors around the same time. We think it’s a good sign.
From The Spear Report: “Global world trade amounts to around $14 trillion annually and 90% of it moves by ship. About 40% of the total is crude oil and 38% is dry bulk. Only 5-7% of the global shipping industry is publicly traded, however, and Navios Maritime Partners L.P. (NMM 17.42 NYSE – yield 9.60%) is one such company. Navios transports iron ore, coal, grains, fertilizers, certain chemicals and other dry cargo. Dry bulk cargo is directly correlated with emerging market economies, whereas crude is more correlated with the developed world. Navios is therefore an emerging market play.
“Navios is a Greek company, but don’t let that scare you; the Greeks and the Scandinavians are the two main cultural groups in the shipping business and they both have excellent track records. About half of the publicly traded shippers are Greek. It makes sense; shipping is the second largest segment of the Greek economy after tourism. Greeks control about 20% of the global tanker and 20% of the dry bulk fleet. They invested more than $4 billion in 2009 buying 220 vessels at bargain prices. Their main competition are the Chinese. In the first four months of this year, Greeks committed to spend $2.5 billion on vessels, while the Chinese purchased $1.75 billion worth.
“The Baltic Dry Index, which tracks the rates at which dry cargo is transported, is trading at 2006 levels and looks a little like the Nasdaq after the bubble popped. Still, the index is trading at levels sufficient to allow the bulk carriers to make more than twice their operating costs. One Deutsche bank analyst believes the Baltic Dry rates have bottomed. We do not necessarily see that in the chart, but if NMM can make money at these rates, we think the downside risk is small.
“Navios declared a cash distribution for the second quarter of 2010 of $0.42 per share. The company is not having difficulty raising capital from equity offerings or from the banks. The company just paid $110 million for a ship and immediately leased it out on a 9-year contract. Fleet utilization was 99.6% in the last quarter and the company has been able to consistently maintain those levels over the last 12 months. Buy.”
Gregory Spear, The Spear Report
Second Opinion
From MLP Profits: “Navios Maritime Partners boosted its distribution for the fourth consecutive quarter, riding a 61.8% boost in quarterly cash flow over last year’s results and a 50% jump in revenue. That was in large part due to continued successful contracting of the company’s fleet of dry-bulk ships. And management was also successful adding assets, with the acquisition of Navios Pollux boosting the average charter coverage of the fleet to 4.4 years and cutting the average age to just 5.7 years.
“Navios’ cash flow and revenue depend heavily on rates for dry bulk shipping, which are notoriously volatile. Management, however, has factored out much of the impact on unitholders, contracting out 100% of shipping capacity in 2010, 92.9% for 2011 and 88.3% for 2012. And the average contractual daily charter out rate is slated to rise in all three years. Second-quarter operating surplus—a key measure of the ability to expand, meet maintenance costs and pay distributions—hit $34.4 million in the quarter. That was more than triple year ago levels and bodes very well for future distribution strength and growth. Conservative financial and operating policies like these are a major point of separation between Navios and other high-yielding shipping companies. And because it’s not technically organized as a U.S. MLP, there are no K-1s to file for unitholders. Still below our buy target of 20, Navios Maritime Partners is a strong buy for those who don’t already own it.”
Roger S. Conrad & Elliott H. Gue, MLP Profits