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NMM skeptical counter piece

|Includes:Navios Maritime Partners L.P. (NMM)

 Stanislav Oleynikov wrote a reasonable piece on NMM this weekend.  While the arguments were not new or different than others have argued in the past, it does have some flaws.  

First, and most important, he uses 2013-2014 charter prices of $15,000 for panamax vessels.  As recently as October, spot market charter prices were $24,000 per day which equals the current 10 average panamax rates NMM is earning.

As recently as November, Diana Shipping signed a 35 month charter for a Panamax at $19,500 so far better than a draconian $15,000 assumption.

The baltic dry index is volatile to say the least, so predicting where it will be in 2-3 yrs is beyond impossible.  The global economies are bound to show accelerated growth during the next few yrs which should increase global trade and also will support the scrapping of older vessels.

NMM gets credit for not taking on vessels without long term charters and those that are accretive to cash flow.  They do not have any charters expiring until the 2H of 2012 so you have quite a bit of time to ponder where charter rates will be in 2013-2014.  

The argument that NMM NAV is too high relative to those companies who arent paying dividends or locked in good charters is the same argument bears use on MLPs who have smartly hedged out commodity prices for 2-3 yrs ahead.  The best companies like LINE keep rolling out hedges, doing accretive acquisitions and increasing their value while the unhedged companies see massive quarterly volatility.  

NMM you are paying for steady cash flow, dividends, visibility thru 2012 and a rebound in BDIC.  Profitable long term drop downs from NM only add to that visibility.

Lastly, the coverage ratio is left out of his piece.  The company is showing a coverage ratio (amount of cash flow relative to distributions paying out) of 2x as per their presentations.  This surplus means the company is more than adequately reserved for lower rates if they occur.  

The real concern should be owning BALT and others who panic lock in lower rates or have to manage their businesses with weak cash flows during these periods and have less financial flexibility.

Net is he wrote a thoughtful piece but it has flaws.


Stocks: NMM