The Greek economy makes news for all the wrong reasons. It's hard to remember that not long ago, the mention of a Greek business chief executive often called forth images of fleets of ships and a glamorous lifestyle that included racing Formula 1 race cars and marrying the former first lady of the United States.
Angelika Frangou is certainly not this typical shipping magnate. A recent interview with Ms. Frangou reveals that while current Greek shipping tycoons may not fit the stereotype, they still provide ample opportunities for acquiring wealth. For one thing, she is the Chairman and Chief Executive Officer of Navios Maritime Holdings Inc. (NM), the Chairman and CEO of Navios Maritime Partners L.P. (NMM) and the Chairman and CEO of Navios Maritime Acquisition Corporation (NNA). She is also a member of many shipping trade and regulatory organizations.
Ms. Frangou has identified strong long-term economic trends for shipping and acted upon them:
"The macros for shipping have been and continue to be generally positive. In the long term, such as over the next 10 to 20 years, growth will continue to be driven by emerging markets in China, India, and of course, South America. Urbanization will continue. For example, China just reached 50% urbanization; India is progressing as well. The process of urbanization requires the continuous shipment of iron ore, coal and other infrastructure material."
The shipping needs of the infrastructure commodities business are well understood and exploited by many public companies but there is significant additional upside. According to Ms. Frangou:
"In essence, Asia has a large population with a disproportionately small water resource. As you may know, for every one kilo of beef, you need eight kilos of soybeans. And for every kilo of soybeans, you need a great deal of water. So there is a multiplier effect on the water requirements based on the changing diets of an urbanizing population. Thus, we have a continuing requirement for the transfer of soybeans, beef, grains and other foodstuffs to Asia."
Ms. Frangou has structured her company balance sheets to take full advantage of these long-term opportunities:
"We entered the U.S. bond market well before the crisis. We did all this preliminary work when money was freely available from the commerce banks at generous terms. This strategy of investing time and money to develop different markets has paid off. Today, we have a healthy balance sheet in an industry littered with balance sheets needing repair. To demonstrate, we do not have any debt maturities until 2017. Also, and equally important, we do not have any capex requirements."
Harry N. Vafias is another Greek shipping magnate with a similarly impressive bio. Mr. Vafias has also crafted a strong financials for his company StealthGas (GASS). In a quarterly conference call on August 17, 2012, Mr. Vafias stated:
"In terms of leverage we have always been cautious…At the end of the second quarter 2012 our net debt to capitalization ratio is 47.8% and we will maintain it at the region of 50%. Our debt is approximately at 360 million and we do not expect it to increase any further for the time being. Our company's new building program has been completed after the delivery of 12 brand new ships from Japan since 2007 and there are no remaining capital expenditure requirements."
Mr. Vafias feels strongly that his company needs these financial measures in order to gain credibility with investors:
"So if people do their homework and really study our balance sheet and our second-quarter announcement, they'll see that we are a safe bet, especially, as I told you, when we're trading at half our real value. If you buy a stock, which is worth $14, and you can buy it at $6.30, you have very little downside."
The basis for this business strength is that the company is a major player in a niche shipping business that has become very lucrative and has good long-term prospects: liquefied petroleum gas shipping.
"Propane demand is increasing, because don't forget that LPG is the first energy source that developing nations use after they stop burning wood. So you have all these small villages in China, Indonesia, Africa, India, where there is no electricity, and these people want to improve their living conditions. They stop burning wood, and they go out to their little kiosks and buy small gas canisters, like the ones you use for your barbecues in the U.S. They can cook their food, and they can heat their homes. It's easily usable and very cheap, therefore, you have an increasing demand for LPG, mostly due to these circumstances.
And certainly, there is a very, very small order book of new ships to be delivered, because in the last few years the majority of shipowners and shipping companies ordered dry bulk ships and tanker ships; they have not ordered LPG ships. So you have an increasing demand for LPG gases and LPG ships and a shortage of available ships."
Mr. Vafias has built a large fleet of these hard to find and expensive to build tankers:
"First of all, the company has 33 LPG ships and four oil tankers. This is the fleet at the moment, all 100% fully owned by StealthGas. EBITDA for the second quarter was approximately $17 million, and net profit was $7 million. Earnings per share adjusted was $0.31, and was the second highest in terms of EBITDA and EPS quarterly results that we have ever seen since the company's beginning, so very, very strong results. The net asset value per share is about $12.50, and we are trading at about six, so from a valuation point of view, the company is extremely cheap, trading at about 50% of its real value."
StealthGas Inc. does not currently pay a dividend but Mr. Vafias fully intends to share the wealth with his investors, perhaps as a gift from Santa Claus:
"…we want to either reinstate the dividend or continue to buy back stock, especially now that the stock is trading at a 50% discount to net asset value. I think we will decide on that around Christmas time…"
Therefore an investor looking to invest in positive long term shipping trends has a range of dividend and potential dividend options from which to choose.
|Navios Maritime Holdings Inc.||NM||$4.00||6.00%|
|Navios Maritime Partners L.P.||NMM||$15.78||11.22%|
|Navios Maritime Acquisition Corporation||NNA||$2.90||6.80%|
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.