Seeking Alpha
Long only, deep value, special situations, small-cap
Profile| Send Message|
( followers)

Summary

  • The worldwide ocean shipping industry is in the midst of a strong recovery.
  • ANW’s compelling growth plan includes expansion into China and the U.S. East Coast.
  • Management has implemented cost-containment and increased asset utilization strategies.

My contributions usually involve stocks I believe are undervalued and have the potential for significant upside within a year or so, but that has become increasingly difficult as the market hovers at historical highs in need of a correction to wring out the excesses. Nonetheless, after hours of tinkering with my brokerage's value screener, I have uncovered what seems to be an undervalued stock in this mostly overvalued market. Aegean Marine Petroleum, (NYSE:ANW) is a Greece-based, small-cap marine fuels logistics company that physically supplies and markets marine fuel and lubricants (bunkering) to ships in port and at sea through its fueling service centers and fleet of operating vessels in Europe, Asia, Africa, North and Central America, and the Caribbean.

As of Monday, June 30th, ANW was trading at $10.00 a share with a 52 week low of $8.24 and a high of $12.72. When the market eventually recognizes ANW's true value, I believe investors could see 40%-50% returns over the next year with very little downside risk in the interim. Here is why.

Ocean Shipping Recovery and ANW's Expansion Efforts

The worldwide ocean shipping industry is in the midst of a strong recovery which translates into increased marine fuel and lubricant consumption and sales, and ANW has positioned itself to benefit from it.

Last winter, ANW acquired the U.S. East Coast bunkering business of Hess Corporation (NYSE:HES), which was the leading marketer of marine fuels along the U.S. East Coast. The Hess bunkering operation and associated assets supply the heavily trafficked ports of New York, Philadelphia, Baltimore, Norfolk and Charleston, and include approximately 250,000 cubic meters of leased tank storage. Over the last three years, these bunkering operations averaged 1.8 million metric tons in annual sales. The acquisition not only allows ANW to supply U.S. customers but also to expand its global full-service marine fuel platform and increase its exposure to U.S. clients worldwide, including leading cruise lines.

ANW has a Memorandum of Understanding establishing a strategic alliance with a Chinese state-owned enterprise jointly owned by SINOPEC Sales Co., Ltd. (NYSE:SHI) and SINOTRANS (OTCPK:SNOTF), which is one of China's five state-certificated bonded and largest bunker suppliers in China. The strategic partnership enables ANW to expand its Asian operations and meet the marine fuel needs of its customers in mainland China.

ANW has also signed an onshore oil storage agreement with a Barcelona-based oil and energy logistics company that operates the largest marine petro terminal in the Port of Barcelona. This port is a key transportation hub located along major seaborne trade routes, totaling approximately 10,000 transits per year and generating approximately 1.2 million metric tons of annual marine fuel sales. The port benefits from extensive cruise-ship passenger travel and is currently undergoing modernization and expansion to substantially increase its capacity. ANW has established a new service center in Barcelona and now provides retail bunkering services to all major shipping sectors as well as leading cruise lines in this port and in the surrounding sea.

Fujairah is one of the seven Emirates that comprise the United Arab Emirates and is the oil storage center for the Middle East. It sits just outside the Strait of Hormuz which is one of the world's most important and busiest ocean cargo routes and ANW recently completed a major expansion of its bunkering operations at this facility.

Sales growth has averaged nearly 17% annually over the past 5 years during the ocean cargo shipping doldrums, which is notable. The above mentioned expansion efforts should drive ANW's continued sales growth for the foreseeable future.

Valuation Metrics

At the writing of this article, ANW's P/CF ratio was 9.3 vs. its peer average of 15.2. Generally, a P/CF ratio below 10 indicates that a company is undervalued. ANW's forward PEG ratio was a low 0.7 compared to the 1.8 industry average. The lower the PEG ratio, the more undervalued the stock relative to its peers.

ANW was trading at 11.1x projected 2014 earnings of $0.90 per share, and just 8.8x 2015 projected earnings of $1.13. This compares to industry averages of 29.2 and 17.0 for the same periods. ANW's tangible book value is $9.70 per share and company debt is very close to industry averages.

Other Factors & Conclusion

Five of the six analysts that follow ANW rate it a "strong buy" with one "buy" rating, and I was unable to find any sell recommendations. Average price targets from these analysts are about $14 per share, some as high as $15. Earnings reports for the last three quarters have met and twice exceeded analyst estimates.

Indications are that ANW is an undervalued stock with upward sales and earnings growth trends. Its current price does not seem to reflect the expected sales and earnings growth that will come from the global ocean shipping market recovery and ANW's business expansion and increased asset utilization plans. My observations and research show that ANW can be volatile relative to the market in general and there is the risk of capital loss. Conduct your own research and speak with your investment advisor about ANW.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in ANW over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Real Value In A Pricey Market - Aegean Marine Petro Is On Sale