Edited By Kate Boehme
Navios Maritime Holdings Inc. (NM) is a shipping company based in Piraeus, Greece and incorporated in the Marshall Islands. Navios has 58 years of experience in worldwide seaborne transportation and transshipment of dry bulk commodities. The company currently maintains offices in the U.S., Belgium, Argentina and Paraguay. Navios Maritime provides integrated services, structured into three segments: Dry Bulk Vessel Operations, Tanker Vessel Operations and Logistics Business. Navios Maritime Holdings is the parent company of the Navios Group, which comprises three other associated companies: Navios Maritime Partners L.P. (NMM), Navios Maritime Acquisition Corporation , and Navios South American Logistics Inc.
Collectively, the group holds a diverse fleet of over 110 boats, including Capesize, Panamax, Ultra-Handymax and Handy Size vessels. Individually, Navios Maritime Holdings controls a fleet of 31 owned vessels and 23 long-term charters, as well as numerous market leases.
While Navios Maritime operates internationally, it possesses a strong presence in South America. In particular, it owns the largest bulk terminal in Uruguay and one of the most liquid ports in Paraguay.
In addition to the already discussed activities, the company also provides shipping advisory services focused on seaborne risk management. This blend of technical and financial expertise gives Navios a significant comparative advantage.
The company's competitive strategy
Angeliki Frangou, Chairman and Chief Executive Officer of Navios Group of Companies, in a recent interview (pdf), pronounced, "In order to differentiate from your peers, you need to follow a conservative business model." In other words, Frangou meant that it is important to understand and cope with market volatility, not try to oppose these forces. The company's key strategy clearly adheres to this philosophy, as it initiates long-term charter contracts in times of healthy markets conditions. This strategy guarantees that any short-term volatility does not cause panic, as well as ensuring that operational costs are sufficiently covered.
Navios Maritime's quick ratio stands at 1.20 and current ratio is 1.50. The same ratios for the industry, as a whole, stand at 0.80 and 1.10, respectively. Furthermore, revenue from charter contracts is secured by AA+ insurance. Therefore, revenue uncertainty is eliminated, while, at the same time, the company's growth prospects are reinforced. The five-year average sales growth rate maintains a positive trend of 7.36 percent, a rate that stands higher than the industry average of 6.32 percent. In addition, the EPS five-year average growth rate equals 38.83 percent, representing a stable source of profitability.
At this point, it is worth mentioning that the company's key strategy has rewarded shareholders over time. Even when the market collapsed in 2008, Navios Maritime continued to pay dividends. In December 2008, dividend yield stood at 11.39 percent. Currently, dividend yield stands at 6.76 percent, which is notably higher than the sector's average rate of 1.30 percent.
The company's latest financial report illustrates a solid first quarter ending on March 31, 2012. Overall, the key factors assessed in the report reveal a healthy balance sheet, even though in this period consolidated revenue decreased by $4.6 million to $152 million. In the first quarter of 2012, revenue from dry bulk vessel operations was down by $10.4 million compared to the same period in 2011. This decrease was mainly attributable to a 12.7 percent decline in TCE per day. Also, it was the result of a reduction in short-term charter-in fleets available within 122 days. This reduction was counterbalanced by an increase in long-term charter-in fleet available within 247 days. On the positive side, in Q1 2012, revenue from the logistics business reached $50.1 million. For the same period in 2011, revenue from the logistics segment was $44.4 million.
Furthermore, first quarter 2012 financial results show a strong EBITDA generation of $62.6 million. As of March 31, 2012 the company's total available liquidity, including lines of credit, was approximately $223.0 million. In addition, on May 14, 2012, Navios Holdings received $6.7 million in cash distribution from Navios Partners. Further cash flows generate from the company's fleet engagement in long-term operations lasting up to ten years. Fleet coverage stands at 89.4 percent, and fleet utilization at 99 percent. The average daily charter rate for the core fleet is $22,021, $28,714 and $31,624 for 2012, 2013 and 2014, respectively.
Currently, Navios Maritime stock trades around $3.62. 52-week range is between $4.49 and $2.87. One-month stock returns amount to 7 percent. The stock has a beta of 2.72, which is higher than average. Genco Shipping (GNK) has a lower beta of 2.02, but Dryships (DRYS) has a relatively higher beta of above 3.
Navios Maritime Holdings' price-to-earnings ratio of 4.40 is significantly lower than the industry's average. Such a low price to earnings ratio suggests that the market has few expectations of future earnings growth. Despite this, overall, I support the view that, at current levels, Navios Maritime stock remains a desirable bargain. The company's future profitability prospects will enhance the existing backlog and reward investors with an already stable dividend yield.
Summary - Key Developments
Navios Maritime Holdings demonstrates a strong commitment to maximizing its fleet efficiency. This commitment is translated into the reduction of operational costs by 35 percent, to well below the industry's average. Meanwhile, fleet utilization has reached almost 100 percent.
Furthermore, recent vessels deliveries - Navios Avior, Navios Centaurus and Navios Serenity - are expected to be major backlog contributors. These new vessels will generate an aggregate EBITDA of more than $12 million over the life of the charter contracts. In general, the company presents competitive management effectiveness.
The net profit margin stands at 13 percent, with a return on assets of 3.0 percent and a return on investment of 3.6 percent. When compared with the same variables for the industry overall, Navios Maritime is trading at attractive valuations.
Most remarkable is the company's key strategy involving long-term contract engagements. During the current market turbulence, Navios has managed to contract revenues of over $580 million through the end of 2014. Shareholders can also be reassured that all charters have been insured by an AA-rated insurance company. Ultimately, it must be concluded that with such a positive outlook, rewards from investing in Navios could be quite high.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.