Seeking Alpha

Adjusted Return's  Instablog

Adjusted Return
Send Message
Market observer with legal background and interest in financial services, physical commodities trading, shipping and irrational exuberance. Values entrepreneurship and good governance, may also use some behavioral investment/contrarian criteria.
View Adjusted Return's Instablogs on:
  • Farstad Shipping - My Pick In The Offshore Sector Carnage

    In De Bibliotheca Umberto Eco once more extolled the benefits of an open-stack library: next to the book the researcher comes looking for she often finds another book, fundamental to her research, something that perhaps would never have been possible using the library catalogues. That was back in 1981 (

    I've been a Maersk Group (Copenhagen:MAERSK-B) investor for a while, a long-term, excellent value conglomerate that will probably stay with me for many years to come. Tomorrow they have their Capital Markets Day and will provide an update on Maersk Supply Service, part of their Services and Other Shipping segment, and a profitable but comparatively small business for them, even if one of the larger quality offshore supply companies globally.

    In the April 2014 Bankers and Insurers Day presentation ( Maersk Supply Service consider themselves a "Total Quality Differentiator" and aspire to become a "Service Differentiator" leaving a slew of mighty Norwegian offshore supply specialists in their low emission exhaust gas.

    The Norwegians may snigger but the Maersk aspirations should not be taken lightly. I was struck though that in that presentation that they compared themselves with only one other "Total Quality Differentiator" company, Farstad Shipping (Oslo:FAR) - Siem, DOF, Solstad where one rung lower. So they must think Farstad is quality.

    I sort of trust Maersk. Did not even know the company before but had to look it up. A Norwegian high-end AHTS/PSV specialist controlled by Mr Farstad, thinly traded, perpetual minority discount, uninteresting dividend and with a huge discount to book and what they claim as market adjusted equity (Q2 share price NOK114, book value NOK178, market adjusted equity NOK259 -

    Oversupply of vessels and perceived lower investment in offshore exploration are quite ominous, and Petrobras and Statoil are the biggest clients for all Norwegians. So I hesitated for a while.

    Well, guess what, the sell off in the oil and gas offshore EPD sector has brought the price down to mid-NOK80s. With a daily volume of less than 10000 shares, or $150 000. For a $600 million market value company.

    Farstad is profitable with very good coverage going forward and a very big Australian presence. After a series of fleet renewals they still have a couple of offshore construction vessels on order but can generally focus to keep their leverage under control. Q3 should get a boost from late summer North Sea business but more generally seems a long-term, responsibly managed business. They don't hand out their cash easily and their share count has stayed the same or reduced since forever. Their quarterly and annual reports provide a wealth of information. It has gone down in very thin volume; a change of sentiment could boost them immediately.

    Farstad is therefore now my pick as a risk-adjusted mid-term opportunity in this environment. "By Far".

    Sep 23 7:23 PM | Link | 4 Comments
  • Boardwalk Pipeline Partners, The MLP/Full Payout Model, And A Small Investing Experiment

    I know nothing about midstream oil and gas MLPs. I know a bit the "MLP" model in marine transportation, where companies have tried to emulate the MLP funding model. The majority of them, if not all, are not true MLPs in the sense that international shipping is generally not subject to taxation in the first place. They just model themselves after the MLP paradigm and just pay out all or most of something they decide is "distributable cash".

    In shipping for example (my favorite example, in fact), Navios Maritime Partners (NYSE:NMM) runs out of cash from time to time. Today NMM announced another follow-on offering in order to survive its commitment to its distribution (which was more than obvious that could not materialize without fresh money) -

    Of course there is a known debate as to whether MLPs have ponziish elements since most, if not all of them, pay out much more in cash distributions than they earn as income under any type of GAAP. Constant follow-on offerings at inflated valuations refill the tank and everyone is happy.

    If you time it well, you may make a good short trade. In fact, follow-on offerings by definition become more frequent. But in general, investors love MLPs. They have been fabulously succesful, generally offering both capital appreciation but most importantly, distribution growth.

    Of course, it works until it doesn't. The train wreck at Boardwalk Pipeline Partners (NYSE:BWP) shows that anyone who bought at any of the previous 5 or 6 follow-on offerings lost a serious chunk of their "safe" investments.

    There is quite a bit of analysis on BWP on this site. Many argue that it was badly run and its assets mediocre.

    I bought some shares yesterday at $14 as an experiment. MLP funds, income oriented investors and bounce traders will continue to leave the stock. But I would really like to see what happens when management acknowledges that the semi-ponzi can't go on and start running a normal company.

    P.S. In shipping, just after the Great Recession Diana Shipping (NYSE:DSX) decided to cut its dividend. This was a huge surprise for investors, who left the stock in droves. But DSX had a habit of almost-full payout coupled with regular follow-on offerings. By stopping the dividend, they accumulated a huge pile of cash. Of course management uses other methods to skim the cash pile (mainly inflated costs) but the point is that deleveraging and cash accumulation protects your investment.

    Disclosure: I am long BWP.

    Additional disclosure: I am long BWP, sold to close $20 puts NMM today (after previously trying on Dec expiration), and have no position on DSX

    Tags: BWP, NMM, DSX
    Feb 11 2:20 PM | Link | 3 Comments
  • NMM: From Spin In The Press Releases To Spin In The SEC Filings?

    The results of Navios Maritime Partners (NYSE:NMM) last week were a non-event as U.S. investors appear fascinated with the prospect of the company relying on fresh equity raises to sustain a cash distribution which is unconnected with the quality of underlying earnings.

    Cashflows from the drybulk business are evaporating and NMM is looking at a sale and leaseback of containerships with the highly indebted Hyunday Merchant Marine to make ends meet.

    Anyway, whatever works. But seeing accounts receivable increasing, I thought I would check the typically immaculate SEC filings of the company (Form 6-K filed 01Nov2013):

    Accounts receivable increased by $7.7 million, from $7.8 million at December 31, 2012, to $15.5 million at September 30, 2013 due to the increase in amounts due from charterers. The increase in accounts receivable was mainly due to $10.0 million recognized as part of the new suspension agreement for one of the Company's vessel.

    This must be a reference to the compensation for the Navios Melodia, chartered to Korea Line, which was the reason for the accounts receivable increase in Q2. The $10 millions was received over Q3. From the same Form 6-K:

    As part of a new suspension agreement entered into in June 2013, Navios Partners received up-front compensation of $10,000 covering hire revenues for the suspension period until April 2016. During the six months ended June 30, 2013, the amount of $10,000 was recognized in the statement of income under the caption of Other income since the Company has no future requirements to provide services or refund any payments received. During the three month period ended September 30, 2013, additional suspension compensation of $3,333 was recognized in the statement of income under the caption of Other income since the Company has no future requirements to provide services or refund any payments received. As of September 30, 2013, $2,083 remained outstanding from the charterer and is included in Accounts Receivable. This remaining outstanding balance is expected to be received by February 2014.

    In other words, the increase in account receivables for Q3 can't be "mainly due" anymore to the $10 million compensation for the Navios Melodia as only $2 million remain outstanding.

    A $5 million increase in AR is not huge but what is it? I don't know for sure, but let's make a guess.

    While according to the Form 6-K the Navios Pollux remains chartered until 2019 at $40,888 per day, the following bizarre disclosure follows in the Related Party Transactions section:

    In July 2013, Navios Partners entered into a charter with a subsidiary of Kleimar N.V for the Navios Pollux. For this charter, for the three and nine months ended September 30, 2013, the total revenue of Navios Partners from Navios Holdings amounted to $1.5 million.

    The Pollux was included in STX Pan Ocean's fleet - NMM's presentations also included STX as major charterer until Q1 2013. Afterwards, STX disappeared from the presentations.

    So any AR increase is logically related to the Pollux.

    If the Pollux is chartered out to a third party, why is it at the same time chartered to a group company? It looks like a mitigation charter.

    But the 6-K disclosure keeps the Pollux chartered out at $40,888. As NMM is insured for its charter-outs, this could make sense but why no mention of the problem at all?

    Very bizarre. I thought I'd buy some speculative puts as NMM's shelf registration statement expires this week, the stock price has gone up to a level that allows a very quick secondary, the ex-distribution date is this week and the above disclosure shows the typical Navios spin entering into their SEC filings.

    Disclosure: I am short NMM.

    Additional disclosure: I am short NMM via options.

    Tags: NMM, shipping
    Nov 04 11:49 AM | Link | 5 Comments
Full index of posts »
Latest Followers


More »

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.