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Summary

  • Navios Maritime Acquisition pays a $.05 dividend, equal to a 6% yield based on the current stock price.
  • The company has radically expanded its fleet, taking on a lot of debt, but has six years before significant payments are due, allowing it to take advantage of the recovery.
  • Analysts like the company and have issued upgrades for the company, yet investors have yet to dive in.

Investors looking for an opportunity in the tanker shipping market will find a good candidate in Navios Maritime Acquisition Corporation (NYSE:NNA). The company recently reported earnings yet it appears the market has yet to fully appreciate the potential the company has. Navios maintains a fleet with a mix of VLCC crude tankers (11 ships) and product tankers (33 ships). Navios Maritime Acquisition Corporation has lost about 15% year to date. Compared to its peers, it looks like one of the worst performers.

(click to enlarge)

While this may scare away some investors, when looking at its financials compared to its peers, it looks like a potential buying opportunity betting on the recovery of the industry.

Dividend Yield

The company has paid a $.05 dividend quarterly over the past four years. Right now that equates to a yield of just over 6%. While it has only been four years since the company started paying the dividend the company has stated it intends to continue rewarding investors. During the recent conference call, analysts were curious about the dividend policy of the company:

Michael Webber - Wells Fargo:…When you think about your dividend policy and the idea of preserving cash to acquire assets, does that moving an asset values make you reevaluate your dividend policy and did you get any thoughts to maybe moving that at this point towards the flow that might give you a stronger currency or do you still see organic cash flow as -- using organic cash flow for acquisition even as these prices as being the best use of that cash.

Angeliki Frangou - Chairman and CEO: I think that Navios Acquisition is a growth company. So I'll never suspect -- I don't think that the policy of the company is to be a high dividend strategy, but we'll definitely try to find ways to reward us stakeholders either with acquisition or with alternative strategy.

So investors can probably interpret that to mean that while at this price level of $3.50 a share, and a 6% yield, investors shouldn't expect the rate to rise too much over the coming years, even if there is a significant price appreciation.

Operations

Operationally, Navios is one of the best run companies. The company has a low breakeven point with daily operating costs 17% below the industry averages.

(click to enlarge)

(Source: company presentation)

The company also has an extremely young fleet with an average age of 4.8 years. While the company does have some older vessels (10+ years), the company bought new ships when the downturn happened and has 20 vessels less than three years old and another six to be delivered in the next 18 months. The young fleet helps to keep the operating costs down due to fuel efficiencies.

The company has also been able to leverage the efficiencies of the fleet to make profit sharing arrangements tied to the charter rates of the ships.

Profit-sharing revenues are calculated at an agreed percentage of the excess of the charterer's average daily income (calculated on a quarterly or half-yearly basis) over an agreed amount and accounted for on an accrual basis based on provisional amounts and for those contracts that provisional accruals cannot be made due to the nature of the profit share elements, these are accounted for on the actual cash settlement. Profit sharing for the years ended December 31, 2013, December 31, 2012 and December 31, 2011 amounted to $4,360, $2,014 and $1,501, respectively.

(click to enlarge)

(Source: company presentation)

(click to enlarge)

(Source: company presentation)

The profit sharing arrangements helps the company maintain a predictable income through the charters, yet still capture some of the predicted upswing in day prices. In 2013 the company realized $4.3 million in profit sharing and in the 1st half of 2014 realized another $1.8 million. If tanker rates continue to increase as predicted, the 2nd half should exceed the 1st half.

Earnings

The company has consistently grown revenues over the previous four years while EBITDA has also climbed.

(click to enlarge)

(Source: company presentation)

The increase in revenue and earnings is directly tied to the number of ships the company has. Since 2010, the company has increased the number of ships on the water by 400% and has another six still be delivered. With the

In order to drive that increase the company has taken on a lot of debt.

(click to enlarge)

(Source: company presentation)

While in the short term the company can manage the debt payments coming due, the expected market recovery should help to meet those larger payments past six years.

Taken into consideration, the company has a book value per share of $3.14 which leads it to a relatively low Price/Book value compared to its peers:

(click to enlarge)

The company's book value currently sits at $3.14 per share. While the value sits just north of 1, other industry leaders have values in the 4-5 range. While I wouldn't use this value as a means to predict future price appreciation, it shows that investors are willing to exceed the book value based on the profitability of the company.

Analyst Expectations

The company has also received several upgrades from analysts within the past six months:

-Canaccord Genuity: Issued a Hold rating on the stock when it was initiated in July 2014 with a price target of $3.75. Analyst Noah Parquett noted:

"The company invested significantly in product tankers early in the cycle, and is in the process now of finishing up a substantial newbuild program, after which it will operate 33 modern product and chemical tankers. Recently, however, NNA has focused its capital on growing in the VLCC segment, particularly secondhand vessels. We believe this is an attractive strategy, as we think that 5-10 year old secondhand VLCCs are currently one of the most undervalued segments of the tanker market. Nevertheless, based on our valuation methodology, we think the shares are fairly valued at current levels."

-Citi: Initiated coverage in April with a Buy rating

-UBS: Has a neutral rating on the company with a price target of $5.10.

-Maxim Group: The company initiated coverage of the company in January 2014 and then upgraded it to a BUY one month later with a $5 price target.

Conclusion

The tanker market has been hit hard by the Global Recession and looks to be in the early stages of a recovery. Analysts predict that the rest of 2014 will be good for tanker rates and should help boost the industry. While this is the case, not all tankers are standing on equal footing. Navios Maritime Acquisition has a large productive fleet, debt payments that are a ways off, and attractive contracts and daily rates. All this contributes to an attractive dividend with a 6% yield at current levels.

Source: Navios Maritime Acquisition: Why I Believe It Will Outperform Its Peers In The Coming Year