So I come up with almost 7MM in the 4th quarter with average spot VLCC rates of 80k/day. Given the share count, if we have a run of rates like we did between 2004 and 2008, there is a lot of juicy profit sharing cash flow coming down the pike. What you do with that cash can add value (buy shares or ships) or they could simply pay it out.
The capital market arbitrage is tough to model. Just for fun, say they issue a couple million shares at 16/share. They use that and some cash on hand/debt to buy a pair of VLCCs and slap 3 year charters on them at 39.5k/day. Those ships yield 21.5MM/year in EBITDA. If they have $80MM of incremental debt to service that has interest cost of 4MM and required amortization of 6MM a year, NAP has an incremental 11.5MM of FCF. Pay the distribution of 1.80 on the 2MM new shares and we are accretive to the tune of 8MM a year across 22MM shares. Repeat ad nauseam and you can rack up big distribution gains. But this is very hard to model because it depends of A) what they can issue shares for, B) what financing mix they use for assets and C) how much ships yield based on asset values and day rates. So it can be a big value driver, but it requires a certain nimbleness and some favorable conditions.
I have not tried to model it that way, but I think that you are on the right path. The other levers would be what they do with the excess cash (since they are likely to do something more accretive than hold cash), and how much they get in profit sharing over time. Presumably they would also attempt some capital markets arb with equity raises at opportune times. But it sure does not seem like there is much risk in buying NAP at current levels unless you are willing to posit a collapse in day rates.
You are in the same zip code, for sure. I used values from a recent broker report. For VLCCs, Prompt 100MM, 5 YO 80MM, 10 YO 55MM, 15YO 40MM. I interpolated between those values as necessary.
Just for fun I also did an NAV estimate for NAP. This is a bit trickier because there is significant value in the long term charters, which is less straightforward to estimate. I come up with something like an extra 75 to 100MM in charter value over the value of the steel for NAP. That being the case, I put NAP's NAV/share around 12.75.
Actually, they just need to limp along to early 2017. At that point NSALI will be ready for IPO and they can raise cash that way if they need to.
I did an NAV calculation just to see if I am missing something big. I come up with NAV for just the fleet at a bit over the current share price. If you add in the book value of investment in affiliates, get an NAV if about $4.40 per share. Most of the affiliate value is NAP, with the stakes in the two Navios Europe entities on top of it. Europe II was done recently enough that I am comfy taking the book value as close enough.
Out of curiosity, I modelled Europe I to see what it looks like. We don't know what the balance of the senior loan is currently (it started at 120MM), so I assumed they have not paid down a dollar of it (unlikely). I assumed that they ships in the entity are on 1 year time charters and getting charged management fees like NNA's deal. The container ships are roughly breakeven, but the product tankers are generating solid cash flow. When I roll everything forward for 5 years (at which point Navios can start selling off the ships at its discretion and unwind the deal), it looks to me like there will be enough fleet value and cumulative earnings to pay all the amounts owed to Navios, the 12.7% preferred return, and a chunk of profit sharing on the liquidation. Unless the container fleet rebounds in terms of value/earnings this is likely to be hitting a single rather than a home run, but it is good enough that we can take the book value as conservative. Things get better if Europe I has indeed already paid down some of the senior loan.
Could be. Stupid is as stupid does. Hard to understand why NNA is trading at slightly over a P/E of 4 and less than NAV. Hopefully they are buying back shares.
I model NNA posting Q4 EPS of .20 and NAP at .63. Way over consensus and after paying the quarterly dividend and everything else my model suggests that NNA will generate about 30MM in free cash in Q4. That would be enough to fund 3/4 of the remaining buyback authorization.
Anyone still care about fundamentals? Bueller?
If I ran the group I would be focused on the 2019 maturity of the unsecured bonds. If they can survive until then, that is the big nut that will have to be dealt with. If you want to assume that the dry bulk market stays at depressed levels (or more pragmatically the fact that this is out of the control of management), what they can control is the build-out of NSALI and the cash flow of NNA. NSALI will likely have EBITDA of close to 80MM this year. Add another couple years of growth to the base and tack on the minimum contract level of 35MM from the port expansion deal, and 2017 EBITDA will probably be in excess of 135MM. Slap whatever you like on that (8 to 10X is what I cuff it at) and factor in their ownership percentage and thin enough meat on the bone there to cover the debt with a partial IPO.
In the meantime, they can do what they can do to manage the dry bulk fleet and do stuff with NNA. If I were management, I would hurry up and complete the NNA buyback and then boost the dividend to .09 per quarter (all the while signing period charters of longer duration). That boosts the NNA dividend stream to NM (and the rest of us) quite materially and gives them more runway to a possible 2017 IPO of NSALI.
Effectively they cannot sell more shares right now. Look at the prices of NNA and NMM. I think this tells us they are expecting to make it to 2017 with very low dry bulk rates and then they have the option of an NSALI IPO to get some funding.
I think the value of NSALI significantly eclipses the current NM share price, so I will be interested in what they say on Monday for sure. Nobody knows how long dry bulk rates will suck. What is in management's control is what they do to stay agile, mobile and hostile during the bad times.
You cannot fire the CEO of any public company. And the entire tanker group is trading the same. So I fail to see your point. You've heard it all before, I'm afraid.
I just can't figure out how you justify pricing like this on either NNA or NAP (or STNG, or TNP, or...). Crazy. These guys are all having the next year since '08 and the share prices are lower than at the beginning of the year.
All oil tankers showing up to be loaded will instead be sunk. Or at least that is what one would think based on tanker price action today.
Sheesh. 70k VLCC rates and MRs triangulating in the 30s and there is no love whatsoever.
I plugged 75k/day for VLCCs and 25k/day for all product tankers into my model for NNA. I come up with EPS of .20, way ahead of consensus. VLCCs are currently above this number QTD and product tankers are a bit short, but I think we will end up roughly here.
Um, equity raises would in fact be deleveraging. Adding equity to the balance sheet. Don't think that s what they have in mind going forward, though. I think they mean gradually paying down debt and trying to grow EBITDA/unemcumbered assets at the same time.
I share your frustration. At this point I think $200MM EBITDA or better is close to a certainty for 2015. Basically unless the entire wet side goes *poof* in short order I can't figure out how to justify 3-handle valuations on this company. Will it change? Search me. I guess we may just have to wait for one of the periodic stampedes into the sector.
I disagree. I understand why they did NAP - they sold a bunch of ships at a 25% premium to market and maybe have a platform for raising non-dilutive equity. I think it was unnecessary, but I understand it. If NAP does not end up flying, I would rather they just buy back the shares they don't already own and be done with it.
I actually like the mixed fleet approach, with both dirty and crude in the same fleet. Diversity and better view of what is going on in your markets/with your counterparties. So I don't think they need to get rid of the VLCCs. Given the volatility in the asset class, I would very much like to see long term charters on the VLCCs, though.
The JVs are rounding error and a lottery ticket, so who cares? If it pans out - great. If not, no biggie either.