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Rob Feinblatt is an individual investor.
  • NMM skeptical counter piece 5 comments
    Dec 13, 2010 9:02 AM | about stocks: 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
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Comments (5)
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  • Stanislav Oleynikov, CFA
    , contributor
    Comments (130) | Send Message
    Long term FFAs are not as volatile as you suggested. It is BDI and short-term periods that fluctuate a lot. On 11/01/2010, panamax Cal 14 were at $17,500.
    reports.platou.com/Fix... is a good site to check current and historical FFAs.
    Diana made a good deal chartering a panamax for $19,500 for three years. Today it would not be possible. However, this charter expires in 2014 and FFA traders believe that rates will be lower by this time.
    FFA traders may be wrong, of course, and 2014 rates may be higher, but it does not matter. Both DSX and NMM will benefit in this case. My main point is that NMM does not deserve the premium it currently has vs its peers, like DSX.
    13 Dec 2010, 02:42 PM Reply Like
  • rfeinblatt
    , contributor
    Comments (46) | Send Message
    Author’s reply » I dont believe 2013 or 2014 FFA arrangements are at those levels and aren't actively traded if at all. That could be the bid but no vessel suppliers would offer at those levels as it wouldn't be economical or make sense. It would create the ultimate contango where a financial firm would buy endlessly those charter rates and sell short term fwd rates. I dont think liquidity exists for either as these mkts are not like oil or gas. They are physical markets.


    I agree with you if we get to 2014 and rates are low then but I think NMM has free look until late 2012. We can start discounting lower distributions at end of 2011 if things don't pick up. A tough bet to make right now


    Best of luck


    22 Dec 2010, 06:50 PM Reply Like
  • Stanislav Oleynikov, CFA
    , contributor
    Comments (130) | Send Message
    You are wrong, it is possible to buy and sell long-term FFAs with good liquidity. As of today close, Capesize 2013 bid 21750 ask 22000, Panamax 2013 bid 15000 ask 15500. Contango in this market is not tradable, because the underlying is different for each contract. It is not the same to haul iron ore today or in 2013.
    Such forward rates are not surprising at all for the industry. They correspond to current market prices for dry bulk ships and long-term time charters for newbuilding vessels with delivery date in 2012 and beyond.
    For example, it is quite profitable to make an order for a panamax with 2012 delivery for $33 mln. and sign a long-term charter at $15,000 a day.
    23 Dec 2010, 01:48 PM Reply Like
  • rfeinblatt
    , contributor
    Comments (46) | Send Message
    Author’s reply » Time will tell. Check back with us all in 2013. Should be an interesting voyage
    24 Dec 2010, 09:41 AM Reply Like
  • rfeinblatt
    , contributor
    Comments (46) | Send Message
    Author’s reply » Also if it was so formulaic then we would regularly see the arb of bought order announcements and lock in by selling those FFA futures. Similarly cos would cease ordering new boats once they saw unprofitable routes in the futures a few yrs out. The reality is they all make a projection or guess whether or what real realizable rates will be two or three years out.


    Again revisit when we get to early 2012 if rates stay depressed. Meanwhile get paid 9 percent per yr with strong coverage ratio and accretive dropdowns
    26 Dec 2010, 02:30 AM Reply Like
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