Seaborne shipping and the public companies that represent the industry have been in stormy waters for years now. Chronic oversupply and little growth in demand has driven many of the companies to the brink while others have seen stock prices spiral downwards in a market maelstrom. Just this week, yet another Navios company, the units of Navios Maritime Partners (NAP) took a serious price plunge, sinking to all-time lows after the announced distribution cut.
Some followers of the company had been flashing bearish warnings with comments and articles, and the same should apply to the parent company, Navios Maritime Acquisition (NNA). This article will briefly look at the composition of Navios Maritime Acquisition, review the financial position of the firm, discuss the announced sale of the Nave Galactic VLCC and its potential effect on the company. Finally, I will then provide a near-term outlook for the stock based on current economic and market conditions.
Overview of the Company
For those unfamiliar with Navios Maritime Acquisition, the company is the owner/operator of tanker vessels transporting petroleum products. The vessels range in size from smaller MR2 sized to the largest VLCCs. And although not a U.S. Company, the stock is listed on the NYSE, and the company voluntarily reports in accordance with exchange practices. Since January, the company stock has traded below $1.00 per share. On February 23, 2018, the company received notice from the exchange giving the Navios Maritime Acquisition 30 days to bring the stock price above the $1.00 minimum.
Overall, the company has been a below cost operator for as long as I have followed the company and has consistently outperformed average charter revenue for the industry. (See this slide from the Q4 earnings presentation)
Nevertheless, even with consistent above-average charter revenue, the company reported a net loss of $12MM on revenue of $50MM for the fourth quarter. This corresponds to an EPS loss of $0.08.
However, the company reassured shareholders that the distribution would be maintained at $0.02 per share, payable as of March 27. And, the board of directors did not suspend the share repurchase program. This may suggest confidence in upcoming quarters, but if so, that confidence may be waning.
At the end of the quarter, the company had a significant war chest, with more than $86MM in cash and equivalents on the books. The fleet utilization had slipped a bit, from >99% to 98.7% (negligible really) but the time chartered equivalent rate had dropped significantly; almost 20% year over year. Still, the company has more than sufficient cash available to meet immediate demands and to stay afloat through the quarter, even with the return of capital distribution of 0.02 per share.
One could argue that the firm also has sufficient capital available to repurchase shares on the open market. One could also suggest that, based on current ratios such as price to book and price to sales, such purchase would be attractive. But, given the soft nature of the seaborne economy and recent movements in charter rates, such a move would probably not prove wise.
Sale of Nave Galactic
In what could seem like a concurring move on the company's part to the statement above, rather than look to spend down the cash reserve, the company is actually bolstering it with the announced sale of one of the VLCC's to its majority-owned subsidiary, Navios Maritime Midstream Partners L.P.
Use of the proceeds from the sale ($44.5MM) will be for "repayment of indebtedness, reinvestment in vessels and general working capital purposes." according to the press release announcing the sale.
The sale required a bit of restructuring collateral of one of the companies bonds, but it was unanimously approved by a Special Committee of independent Directors. The sale should not come as a surprise because the partnership has rights to purchase any crude or product tanker from Navios Group with a 5+ year charter. So, the sale of the Nave Galactic should be a net positive effect on the company's financial position.
Even so, there is little hope for a short-term rally in per share price. Market rates for tankers have continued to weaken, and the firm is running close to the deadline for raising the per share price above the $1.00 per minimum required by the NYSE for continued listing.
In the short term, I expect a reverse split announcement or delisting of the shares, either of which should have a net negative effect on the market price.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This information is not investment advice, nor is it a suggestion to either buy or sell any securities. Retail investors should do their own research and fully understand the risks associated with this company.
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