By Fani Kelesidou
After having achieved quite high growth rates up until 2008, the Greek economy started to roll down the hill. Currently, Greece is experiencing its fifth consequent year of financial distress. Greece's financial imbalances led to the introduction of a series of fundamental reforms combined with external financial support. The need for consolidation required that public expenses were dramatically limited. Thus, GDP growth in Greece was, and still is, deeply impacted. In 2010, the GDP growth rate decreased by 3.5 percent, and by 6.9 percent in 2011. It is estimated that the decline in GDP figures will continue throughout 2012 but at lower levels. According to the IMF's latest report, the real GDP growth rate will go down about 4.7 percent.
Overall, the country's restrictive income policy caused the unemployment rate to reach unprecedented levels and the public to revolt. On the other hand, it had some positive results. In 2010, the public deficit was reduced by 34.8 percent. By the end of 2011, public sector deficit had further decreased by 16.8 percent. If the Greek government can accelerate the reforms, then future GDP trends might reverse. Analysts estimate that by 2013 negative growth trends will end, and we might see a return to positive rates. Business Monitor International estimates that an increase of 1.3 percent of GDP is expected during 2013. In a recent report, Goldman Sachs indicates that the Greek economy has started to show early signs of adjustment. As of August 2012, the primary deficit stood at €1.3 billion, which was much lower than the expected amount of €4.2 billion. During the first 8 months of 2012, the primary deficit decreased by 78 percent compared to the same period in 2011.
Right now, Greece is certainly not the investors' favorite place. One might find the idea of investing in Greek ADRs outrageous. However, I totally agree with what Frank Hubbard once said:
The safe way to double your money is to fold it over once and put it in your pocket.
I believe during this period of economic distress with stocks trading at bottom levels Greece could offer great bargains. Here, I review four small-cap stocks within the Greek shipping industry, which offer nifty dividend yields:
Navios Maritime Holdings (NM) is a vertically integrated shipping company. It has over 50 years of experience in worldwide seaborne transportation of dry bulk products. The company operates through three segments: Drybulk Vessel Operations, Tanker Vessel Operations and Logistics Business. Navios Maritime Holdings is the parent company of the Navios Group.
During Q2 2012, NM's revenue grew by 4.07 percent. The company holds an average 5-year sales record of 27.40 percent. Earnings per share for the projected 5 years stands at 16 percent. For Q2 2012, fleet utilization was higher than the previous quarter and reached 99.1 percent. As of August 22, 2012, the company had chartered-out 93.4 percent of available days for 2012. Also, the company had chartered-out 41.3 percent and 24.4 percent of available days for 2013, and 2014, respectively. These charters are equivalent to $279.8 million, $169.6 million and $110.9 in revenue for 2012, 2013, and 2014. Totally, Navios Holdings has fleet employment for periods up to 10 years. The average daily charter-out rate for the core fleet is $20,870, $28,363 and $31,590 for 2012, 2013 and 2014, respectively.
Navios Maritime Partners L.P. (NMM) is one of Navios Group's associated companies. Navios Partners engages in maritime transportation services of dry bulk cargoes. The company operates globally, mainly under long-term contracts. It holds a diverse fleet of 21 vessels. Navios Partners's combined fleet carrying capacity is estimated at over 2.5 million deadweight tons, with an average age of 5.6 years.
Q2 2012 financial results reflect an overall strong financial performance. The company recorded revenue growth of 7.55 percent. Operating surplus increased by 2.8 percent to $29.5 million compared to Q1 2012. Net income rose to $16.7 million, or by 23.7 percent quarter-to-quarter basis. The company declared a cash distribution of $0.4425 per unit, representing a 0.6 percent increase from the previous quarter. 5-year average sales growth stands at 42.55 percent. Long-term debt-to-equity ratio is 0.45, while the industry's average ratio is 1.24.
The company's fleet is engaged in medium to long-term charter-out agreements with a remaining average term of 3.5 years. Thus, Navios Partners has ensured a stable source of income and distributable cash flow. In particular, the company has fixed contracts for 99.0 percent of its available days for 2012, 78.3 percent for 2013 and 43.1 percent for 2014. The additional backlog generated from these contracts is estimated to $203.0 million, $174.3 million and $110.2 million, for 2012, 2013, and 2014, respectively. With a Beta of 1.31, NMM is a bit more volatile than the market. The analysts' average target price is $16.96, suggesting upside potential of at least 14 percent.
Costamare Inc. (CMRE) is a leading international owner of containerships. The company operates through a number of wholly owned subsidiaries. It holds a fleet of 56 containerships, including new buildings and second hand vessels. Costamare's total carrying capacity is over 320.000 twenty-foot equivalent units.
For the six-months period ended June 30, 2012, Costamare's revenue amounted $196 million. This represents a revenue growth rate of 8.8 percent from the same period in 2011. The company has a long-term debt-to-equity ratio of 3.24, which is quite risky. Nevertheless, it can be justified by the company's long-term investment strategy. Costamare is taking advantage of the recession in the shipping sector by acquiring vessels from distressed companies. However, the company has taken precautionary measures regarding its future cash flows. Costamare's Chief Financial Officer, Gregory Zikos, stated that the company has reduced its re-chartering risk for the coming years. For the remainder of 2012, the charters for the vessels coming out of employment account for 2 percent of contracted revenues. For 2013, they account for only 4 percent of contracted revenues. Moreover, return on equity figures are encouraging. Costamare's ROE ratio stands at 22.56 percent, which is one of the highest among its peers. For Safe Bulkers (SB), Navios Maritime Partners, and Kirby Corporation (KEX) the same ratio stands at 25.04 percent, 11.96 percent, and 14.42 percent, respectively.
Capital Product Partners L.P. (CPLP) engages in seaborne transportation services of crude oil, refined oil products, and chemicals. Capital's fleet consists of 25 vessels with an average age of 4.4 years. The company's vessels are chartered under medium and long-term fix-rate contracts. As of June 30, 2012 Capital had an average remaining contract term of 4.7 years.
Capital's most recent quarter's financial performance was modest. Revenues for the second quarter of 2012 were $37.8 million, compared to $27.9 million in the second quarter of 2011. This increase was mainly attributed to the expansion of the core fleet following the acquisition of Crude Carriers Corp (CRU). In turn, operational expenses showed a significant upward trend. However, the company managed to lower its debt pile by $170.1 million to $463.5 million. Capital strengthened its balance sheet through the issuance of $140.00 million of class B convertible preferred units. Meanwhile, earnings from the crude tanker segment remained boosted enhancing this way the company's financial flexibility.
Navios Maritime Holdings Inc
Navios Maritime Partners L.P.
Capital Product Partners L.P
One-year stock returns
Gross profit margin
Source: Morningstar and YCharts
These stocks represent fruitful investments for investors seeking a diverse income stream. The industry's average dividend yield stands at 10.30 percent. Despite the harsh conditions for the industry as a whole, these companies have managed to combine relatively high dividend yields and strong profit prospects.
Overall, since 2009 the Baltic Dry Index kept sliding until it reached historical lows. Most recently, after falling to 663.00 points in September, 2012, the BDI started to follow an upward pace. As of October 9, 2012, the index stood at 883.00. In general, the BDI is an assessment of the price of moving dry bulk commodities by sea. Therefore, taking into account what the BDI tracks, one should expect carriers' stock prices to plummet due to falling revenues. However, this is not the case for the above mentioned companies. Throughout 2012, NM, NMM, CMRE, and CPLP have posted positive changes.
The industry is facing numerous challenges primary due to lower demand and consequent oversupply issues. Moreover, the recession in Greece, Spain, Italy and Portugal left a noticeable mark on container trade volumes. During the summer of 2012, flows into European ports diminished by 16 percent. In the container segment, the Germans are struggling with large debt piles and are losing their dominant position. However, the Greeks seem to have played their cards successfully. Over the past 5 years, they have managed not only to survive but to gain momentum among the industry's pioneers.