NAVIOS MARITIME ACQUISITION NNA
July 24, 2014 - 10:34pm EST by
styx1003
2014 2015
Price: 3.50 EPS $0.00 $0.00
Shares Out. (in M): 160 P/E 0.0x 0.0x
Market Cap (in $M): 560 P/FCF 0.0x 0.0x
Net Debt (in $M): 1,150 EBIT 0 0
TEV ($): 1,710 TEV/EBIT 0.0x 0.0x

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  • tankers
  • Oil
  • Commodity exposure
  • Shipping

Description

Investment Thesis & Valuation:

Navios Maritime Acquisition Corp. (NNA) currently trades at distressed valuations with substantial upside optionality to improving crude and product tanker rates.  The company is well-positioned to generate at least $0.75 per share in 2016 (see “2016-E FCF Downside”) once the fleet expansion is complete, assuming no improvement in shipping rates from today’s levels.  Assuming a modest improvement in rates and new vessels deliver on schedule, FCF should be $0.85 (see “2016-E FCF”), and applying an 8x multiple = a $6.80 stock price plus $0.20 of cash dividends over the next 12 months.   Note that every $1,000 improvement in spot rates at 50% sharing (similar to current contracts) is approximately 7M incremental FCF ($0.04 per share).  The current yield is 5.7%, so you’re paid to wait.  This opportunity exists because investors typically seek either a pure-play shipping segment (for example: VLCC crude tanker upside, dry bulk Capesize leverage to seaborne iron ore, or US Jones Act shipping) or spot market exposure for exponential earnings growth.  In addition, LTM Net Debt / EBITDA 8.8x seems high, but this is the nature of the shipping industry’s high upfront capital spending that de-levers over the vessels life.  A potential catalyst to unlock value is a spin-off of the crude tankers and investors could better evaluate their preferred investment vehicles, namely crude tanker rate volatility/optionality versus product tanker stability, which could result in a better multiple for both tankers.        

Key Considerations:

  • Contracted Revenues with Profit-sharing Upside: NNA has structured their contracts as time-charters with profit-sharing upside.  Unlike many other crude or product tanker fleets, NNA is properly managing risk and not gambling on daily spot rates.  There is high cash flow visibility and no liquidity issues (long-term, non-amortizing debt) to participate in higher rates.   
  • Leverage to Secular Growth in Ton-Mile Demand and Moderating Net Fleet Growth: demand for product tankers is driven by global arbitrage opportunities due to regional refinery differences and supply/demand for refined products.  Global product tanker ton mile demand has been growing at 6.5% CAGR and net fleet growth is expected to moderate to < 4% by 2016 with 2014-2015 supply absorbed by growing demand.  Similarly, VLCCs fundamentals are improving after years of distress and notable bankruptcies.                   
  • Strong & Conservative Management Team: Navios management is highly regarded in the industry as a balanced and conservative vessel owner and operator. 
  • Price Target 8x FCF:  historically mid-aged vessels have been acquired at 5x over the cycle and NNA should command a higher multiple with their younger and eco-type MR fleet and long-term VLCC coverage.  In addition, Navios has one of the top management teams and lowest-cost operating structures.

NNA Valuation & Capitalization:

 

 

Stock Price

 

$3.50

Shares Outstanding

 

160.0

Market Cap

 

560.0

 

 

 

+ total debt, 3/31/14

 

1,257

+ due related parties, 3/31/14

 

11

- cash, 3/31/14

 

(118)

 

 

 

Enterprise Value

 

1,710

 

 

 

LTM EBITDA

 

131.0

Net Debt / EBITDA

 

8.8x

EV / EBITDA

 

13.1x

 

A detailed revenue build by vessel is too cumbersome to include here however it can be constructed from the rate and maturity  information in the public filings (including the investor presentation available here: http://ir.navios-acquisition.com/phoenix.zhtml?c=222706&p=irol-presentations ) and we have included our rate assumptions.  If there are more questions, we can get into more detail in the Q&A.

2016-E Revenue & Costs:

 

2016-E

         

Revenue Build:

 

 

         

Crude Tankers

 

127.7

         

LR1 Product Tankers

 

47.9

         

MR2 Product Tankers - ON WATER

 

90.1

         

MR2 Product Tankers - TO DELIVER

 

44.7

         

Chemical

 

23.3

         

Total NNA Revenue by Vessel

 

333.6

         

 

 

 

Avg 1Y Time-charter

     

Implied Per Day Avg:

 

Avg Rate

5Y Low

5Y High

     

Crude Tankers

 

$34,904

$19,800

$39,600

Includes 2 LT @55K + 2 at 44K

LR1 Product Tankers

 

$16,355

$13,000

$19,300

     

MR2 Product Tankers - ON WATER

 

$17,574

$13,200

$15,200

New Eco-type ~20% Premium

MR2 Product Tankers - TO DELIVER

 

$17,428

$13,200

$15,200

New Eco-type ~20% Premium

Chemical

 

$15,884

               -  

               -  

     

Total NNA Revenue by Vessel

 

$21,196

         

 

 

 

         

- cash Operating Costs (Mgmt Fees)

 

(120.0)

17,738 days x $7,616 WA cost / day = 120M

 

- cash G&A, Other Misc

 

(12.0)

         

- amort of def dry dock

 

10.0

         

 

 

 

         

2016-E EBITDA

 

211.6

         
               

2016-E FCF:

 

2016-E

         

2016-E EBITDA

 

211.6

         

interest

 

(65.0)

         

dry dock

 

(10.0)

         

FCF

 

136.6

         

per share

 

$0.85

         
               

2016-E FCF: Downside

 

2016-E

         

2016-E EBITDA, base case

 

211.6

         

Assume $5,000 per day downside on spot

 

(15.0)

7,400 days x $4,000 x 50% sharing = 15M

 

interest

 

(65.0)

         

dry dock

 

(10.0)

         

FCF

 

121.6

         

per share

 

$0.76

         
               

NNA Total Days: Sensitivity

 

2016-E

Rate

Total

% Share

to NNA

 

Crude Tankers

 

3,660

$1,000

3.7

50.0%

1.8

 

LR1 Product Tankers

 

2,928

$1,000

2.9

50.0%

1.5

 

MR2 Product Tankers - ON WATER

 

5,124

$1,000

5.1

50.0%

2.6

 

MR2 Product Tankers - TO DELIVER

 

2,562

$1,000

2.6

50.0%

1.3

 

Chemical

 

1,464

$1,000

1.5

50.0%

0.7

 

NNA Total Days, EBITDA & FCF

 

15,738

 

15.7

 

7.9

 

per share

 

 

 

 

 

$0.05

 
               

NNA "Open" Days: Sensitivity

 

2016-E

Rate

Total

% Share

to NNA

 

Crude Tankers

 

1,098

$1,000

1.1

50.0%

0.5

 

LR1 Product Tankers

 

1,010

$1,000

1.0

50.0%

0.5

 

MR2 Product Tankers - ON WATER

 

3,112

$1,000

3.1

50.0%

1.6

 

MR2 Product Tankers - TO DELIVER

 

1,464

$1,000

1.5

50.0%

0.7

 

Chemical

 

732

$1,000

0.7

50.0%

0.4

 

NNA Total "Open" Days, EBITDA & FCF

 

7,416

 

7.4

 

3.7

 

per share

 

 

 

 

 

$0.02

 

 

Disclosure

We make no claims, promises or guarantees about the accuracy, completeness or adequacy of the contents of this document and expressly disclaim liability for errors and omissions in the document.  We have no obligation to update this document.  We may change our position at any time without posting an update.  The views expressed here are merely the opinion of the author.  Readers should do their own research.

 

I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.

Catalyst

Modest improvement of rates.  Vessel Deliveries.  Potentially a spin-off of crude tankers.
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