|Shares Out. (in M):||130||P/E||0||0|
|Market Cap (in $M):||260||P/FCF||5.12%||2.72%|
|Net Debt (in $M):||478||EBIT||28||40|
We recommend the stock of Navios Maritime Partners L.P. (NMM), which we believe could easily double from here based on the company’s unique structural advantage and “green shoots” of industry recovery.
NMM is part of the Navios Maritime Holding (NM)—a far-reaching (albeit structurally complex) shipping business headed by well-regarded CEO, Angeliki Frangou.
By way of background, Navios Holdings directly owns and operates shipping assets, including 64 dry bulk vessels (38 owned and 26 chartered-in) and holds stakes in a range of affiliated shipping companies. NM holds 46.1% of publicly listed Navios Maritime Acquisition Corp (NNA), which focuses on the tanker market (26 product, 8 VLCC and 2 chemical tankers). In turn, NNA owns 59% of Navios Maritime Midstream Parnters L.P. (NAP), also publicly traded, that owns/operates crude tankers (eight VLCC’s) under long-term charters.
NM additionally holds 63.8% of Navios South American Logistics Inc. (not separately listed), which owns port terminals and barging operations (think Jones Act) in South America. (This South American asset is interesting, and provides optionality to the NM story, but that is for another write-up perhaps). The Navios family have also recently entered the container market through Navios Maritime Containers (more below), which is traded over-the-counter on an Oslo exchange.
Ms. Frangou owns 27% of NM and exerts effective control of the company. While the shipping industry is populated with managers of questionable regard (e.g. George Economou) Ms. Franguo has a strong reputation as an operator and as an allocator of capital. As testament to her market acclaim, the creditors under the Navios Holdings Term Loans wrote into the credit agreement the ability to execute a default notice if Ms. Frangou’s ownership drops below 20%.
Investors need not understand the intricacies of the Navios complex to appreciate the Navios Maritime Partners story. However, this high-level overview underscores a key element of our bullish thesis: Navios has deep expertise in shipping, which yields operational advantages to NMM as well as access to deal flow that can help Maritime Partners continue building Enterprise Value.
Additionally—as the satellite of related entities highlights—the alchemy of Navios entails its expertise in financial engineering; Navios has built an impressive track-record of tilting between equity and debt markets to capitalize on funding opportunities to build Enterprise Value. NMM’s very existence underscores this dynamic, as NM created the entity to capitalize on formerly robust MLP multiples. While MLP’s subsequently collapsed (for reason well beyond Navios’ control, obviously), it nonetheless highlights the company’s financial acumen; they tapped a hot market at the right time.
Overview of Navios Maritime Partners (NMM)
Digging into the Navios Maritime Partners story more specifically, NM owns an 18.9% LP interest (and 2.0% GP stake) in the company. NMM owns 37 vessels: 13 Capesize, 14 Panamax and three Ultra-Handmax Dry bulk ships as well as seven Container ships. NMM additionally owns 59.7% (and warrants for an additional 6.8%) of the Navios Maritime Containers entity (referenced above).
NMM is structured as an MLP, but the company suspended distributions after the fourth quarter of 2015 amid a crash in Dry Bulk rates. Not unexpectedly, the company’s shares have spiraled from the $13 context in mid-2015 to the ~$2.00 vicinity today. We believe the company is now well positioned for a turn-around.
Improving Macro Backdrop.
The BDI has shown some signs of life in 2017, with 1Q17 average 1,297 up markedly (3x) from 1Q16 average of 429. The market has given back some of this strength (as highlighted below) with July 2017 average of 946 up only 45% over July 2016 average of 656:
This cool down may, paradoxically, end up benefitting the market over the intermediate term.
In short, after years of seemingly irrational building, the Dry Bulk order book appears vastly improved starting next year.
h/t JP Morgan
Source: Navios lender presentation
The modestly cooling of BDI will hopefully prevent a year-end rush of new order that could throw the market out of alignment, yet again.
Iron Ore Market. Iron Ore flows are the cornerstone of the Dry Bulk industry, of course. Inventories at the Chinese ports remains stubbornly high, but imports remain robust nevertheless: