Navios Maritime Holdings (NM) is the only name in the drybulk shipping space to consider owning. NM controls 54 vessels (as seen in the Q2 2012 presentation), generates stable cash flow from long-term charters, has significant ownerships in Navios Maritime Partners (NMM), Navios Maritime Acquisition Corporation (NNA), and Navios South American Logistics, and features a strong balance sheet. All of these factors make NM the name to own in the shipping space as described below.
Near-Term Earnings (2012)
As of Q2 2012, 93.4% of all available vessel days were locked into charters at a cost of $235M USD. These fixed days are generating total revenue of $280M USD. Thus, NM is guaranteed to make money for the remainder of 2012 (outside of possible one-time charges). There are 944 open days remaining across NM's 50 vessels currently operating. The potential is there for NM to further increase its profit by chartering out these remaining days.
Relative to the rest of the drybulk sector, NM has far less exposure to the spot market rates. For sake of comparison, Dryships (DRYS) had just 44% vessel days covered at Q2 end.
Long-Term Contracted Revenue
For 2013 and 2014, respectively, NM has contracted revenue of $170M USD and $111M USD. This represents just 41.3% and 24.4%, respectively, of the total vessel days contracted, so there is potential to increase these revenue numbers significantly. The current average daily charter-out rate is $28K for 2013 and $32K for 2014. For sake of comparison the 2012 average daily charter-out rate is $21K.
If we assume a $15K per day charter-out rate (which is very conservative), full-year revenue in 2013 will be $285M, which is a profitable year for NM. Any increase in the per day charter-out rate will increase NM's top line, and therefore, profitability.
Efficient Operating Structure
The average NM vessel has an operating cost of $4.3K per day compared to an industry average of $6.4K per day (see slide 8) . NM's operating costs are about a third less than the industry average, which is due to its modern and efficient fleet. Its fleet has an average age of 5.3 years versus an industry average of 10.9 years (see slide 29). Newer ships are cheaper to run.
A comparison of NM's vessel operating costs to DRYS's shows that DRYS's operating costs are about $5.3K per day (top of page 6), or $1K higher than NM's.
Economic Interests in Other Navios Operating Companies
NM has a 25.2% ownership in Navios Maritime Partners. NMM is publicly traded, with EBITDA of $138M for full-year 2011. Based on NMM's market cap, NM's interest is worth about $2.11 per share. For reference, NM currently trades at 3.80 per share! This holding provides NM with $28.5M a year assuming a NMM quarterly dividend rate of $0.4425 per share.
NM also has a 54.0% economic interest in the Navios Maritime Acquisition Corp. NNA has a fleet of 29 vessels, and is a leading company in the tanker sector. Based on NNA's market cap, NM's interest is valued at $0.69 per share. On a full-year basis, NNA will pay NM $5.2M.
In summary, NNA and NMM pay NM $33.7M per year. Since NM's annual dividend run rate is 24.6M ($0.06 per share), the dividend payments from the operating companies cover NM's dividend by a factor of 1.4. Thus, NM's dividend appears to be safe in the near-term. Further, the combined valuation of NNA and NMM is $2.70 per NM share. Since NM is currently trading at $3.80, you are essentially buying NM for just over a dollar a share!
Balance Sheet Strength
NM has a net debt to capitalization rate of 50% at second quarter end 2012. NM has just $36M of debt coming due in 2014, and no other debt maturities until 2017. Since NM has $179M of cash on its balance sheet, it can easily cover the 2014 debt payments.
NM's favorable long-term charter rates, low operating costs, strong balance sheet, and economic interests in other Navios operating companies combine to make NM the stock to own in the drybulk sector.