The revenue bumps you see are related to their short term chartering in and out, port ops, and other miscellaneous stuff. As for the increase, take a cape that is delivered in 2009 and chartered out for $50k/day net. Op expense is about $5k/day, so NM nets roughly $45k/day. That's about $16MM in incremental EBITDA from one ship per year. Depreciation will be about $3MM annually, so $13MM drops straight to the bottom line. That is $.12 per share in annual EPS. All you have to do is do the math and see how many ships will be delivered and when. And this ignores older charters rolling over at higher day rates.
I guess I still don't get how they aren't making more profit NOW if the difference between rates and expences is so big. That is unless the majority of their fleet is locked in to long term rates from the bygone days when ships could be had on the cheap. Looking at their current operating expences it appears that the cost of having a ship in operation eats up about 85% of their revenue.
But if $1.85 is a realistic number for '09 I'll stick around. Maybe by then I'll come to understand the business model a little better.
The results you are seeing now are affected by a few things:
- Some messy depreciation nonsense related to Horamar
- Some lower rate charters that are still on the books. These will get rolled over at higher rates over time.
- The biggie: the short term charter activities that are very low margin and run through both the top and bottom line. This doesn't mean much and I generally ignore it in my modelling, but it makes the financials look funny.
Dunno what to tell you, really. I model NM ship by ship and ignore the short term charter activity. If you take the time todo the same, I think you'll get a better idea of what is going on.
Just a slight observation. If I'm not mistaken, the business model as put forward by NM is based upon defined income with minimal exposure to erratic swings in vessel chartering fees (SPOT and short-term voyages). Ordinarily, this type of philosophy lends itself to a higher dividend payout. Certainly that is not the case here as even at an absurdly low $9+ share price the dividend is well below 4%- in fact, not far from 3%. So it seems this stock should be attractive to growth investors. The problem is NM is saddled with low-ball charters that are simply not competitive in relation to what other dry-bulkers have negotiated. So what is the attraction to the investing public when NM is compared to double-digit dividend payers who are also performing better while adding to their fleet size?
Don't get me wrong. I invested in NM under the belief that its shares would not be impacted by a falling BDI due to its "profitable" long term charters. Well, that approach has proven to be faulty given how the market absurdly values the sector.
Can someone offer a brief primer on why it is wiser to hold onto stagnant NM shares paying 3.5% or so when I could triple my dividend and still achieve similar share appreciation potential elsewhere? I'm really hoping to be convinced. TIA...
Greetings from Ireland.
I have tried to draw a comparison that fits with Navios. You may or may not enjoy reading it. This six hundred and twenty five word synopsis is not as long as you might think and contains some spelling that you may not recognise.
Let us suppose that Navios buys and then rents out houses or condos. Navios owns some houses and has them leased out for very long lease terms. There are no transitory tenants here and none of the tenants are going to disappear with a squeal of tyres at midnight. These tenants are the best tenants in any neighbourhood.
The rent that Navios receives is more than enough to pay off the mortgage (if there is one) and still pocket some money. This is not likely to change in the near term as Navios holds most of its property in Manhattan and bought it off plans a long time ago so even though the property is new it was purchased at prices reminiscent of ten years ago.
The properties that Navios owns are high quality and high margin but also high maintenance. The gutters need to be cleaned regularly. However Navios is still making a profit.
Navios also rents houses and condos from other landlords but rents those units out to very long term tenants (also the best tenants anywhere) at slightly higher rates and pockets a marginal profit.
Now this is the risky part. Renting in a property at a variable rate and renting it on for a long term at a fixed rate is like having a 100% interest only mortgage. If the amount that you take in rent is less than the amount that you pay to service the mortgage, you lose money. However, Navios has hedged this risk by retaining the option to purchase the property at an incredibly favourable price (like what the house would have sold at ten years ago) and they can do this whenever they like.
The whenever they like will or could be as soon as the price that they rent the property in at exceeds the price that they can get from renting it on. Therefore, the main risk lies in being able to receive finance to purchase the property. This is basically a given because the long term lease agreements that Navios holds with some of the most reputable tenants in the neighbourhood allows Navios to go back to the bank and say lend me money to buy houses and condos, specifically the ones that they already have leased out on long term leases.
However Navios is also interested in buying a few mansions in Manhattan (The Capesizes). Navios uses the same strategy to approach the bank by securing a financially sound tenant on a long term basis before signing the finance deal.
The bottom line. Navios is effectively getting someone else to pay their mortgage, pocketing some ready cash and also using that ready cash to buy a few speedboats that they can rent out to their neighbours to do some river excursions. The profits of those have yet to be seen on the cash flow.
This scenario may sound a bit uncomfortable to many people in the US given the present conditions in that market but it is the ideal that a property speculator wishes to attain.
The defining fact with Navios is the existence of the long term tenant. This is why Navios values goodwill so highly on its balance sheet. I also think that the bank values that quite highly also.
Navios is poised for successful, low risk, long term growth. The day will come when Navios stops trading along with the BDI because their foresight is way ahead of any of the competition.
The only difference between NM and the other bulkers is while NM has locked in long term charters in order to "pay the mortgage" and pleasing the bank, the other bulkers are more inclined to use the spot market to pay the mortgage, thus pleasing the bank and shareholders as well by making a profit.
I do have to say that whoever has formulated this elaborate business plan is a genius. As you, I've seen it before in other business'es and it's designed to make money...but not necessarily be completely transparent.
Dude there's no way you can operate a ship of that size in open waters on 5,000 per day. How many crew? Food, supplies, diesel? A ship that size consumes over 100 gallons of diesel PER HOUR...thats 2,400 gallons a day x $5.00 per gallon is $10,000 per day just in fuel costs...and I believe I'm being very conservative on the consumption side...could be more than 100/per hour.