Navios Embarks on Modernization Amid Demand Tailwinds

Navios Embarks on Modernization Amid Demand Tailwinds

Price $22.63                      Growth Purchase                        June 24, 2022

  • One of the largest American-owned shipping fleets in the world, with 150 vessels in stock.
  • Broad client base including top names in oil, dry bulk, and other maritime carrying firms.
  • Contracted days exceed operating costs for the year, with 44.6% of open shipping days available for spot market or other contracts.
  • Expansion plan includes adding 22 new ships by 1Q25 to abide by new environmental and safety standards.
  • Long-term contracts guarantee at least $2.8 billion in revenue through 2027.

Investment Thesis

Navios Maritime Partners (NMM) is a multinational shipping and logistics company specializing in dry bulk shipping such as iron ore, coal, and grain. Navios operates 150 vessels with a carrying capacity of 236,422 Twenty-foot Equivalent Units (TEU, 1 TEU is a single 20-foot cargo container) for cargo ships, 6.6 million tons of Dry Weight Tonnage (DWT) in bulk cargo (DWT includes non-cargo weight), 5.9 million DWT for tankers, and an average fleet age of only 9.5 years.

28.5% Loan to Value ratio excluding ships currently being built translates to a 4.0x debt-to-EBITDA, both of which are average for the sector. Navios’ valuation is compelling with its book-value-per-share of $78.20 and a rock-bottom price-to-earnings multiple of 1.3, indicating that even with the significant price increase in the last 2 years, Navios is still undervalued from a fundamental perspective.

Navios is aiming to be one of the first fleets to be net-zero admissions being two years ahead of its peers for meeting environmental targets. Pricing has been strong since Covid. There is a shortage of shipyards to meet the demand for new ships ensuring the market stays tight and pricing favorable.

We believe that Navios with its low valuation and growth plans is an excellent choice to take advantage of strong pricing in the maritime shipping sector.

Navios Maritime Partners

E2022

E2023

E2024

Price-to-Sales

0.6

0.6

0.5

Price-to-Earnings

1.5

1.3

1.3

EV/EBITDA

3.3

3.0

2.9

Operations

Ship Type

Total Fleet Tonnage

Number of Vessels

Dry Bulk Goods Carrier

6.6 million DWT

54

Container Ship

236,422 TEU

47

Tanker

5.9 million DWT

49

DWT is Dry Weight Tonnage, and includes fuel. For dry bulk ships, DWT is used as it is a unit of mass, and TEU is a unit of area.

Navios targets pre-reserved term shipping time by leasing out their ships to other maritime carrying companies such as MSC or Maersk and transporting cargo for individual firms like Saudi Aramco or Costco Wholesale. Charters are issued on a basis from a single trip (spot), up to multi-year long contracts. Maintaining a mix between the two is important since when demand is low ship availability may exceed demand leading to low charter rates. However, too many long-term contracts mean missing out on taking advantage of high-demand, tight markets when pricing is high (such as the present market).

90% of international trade goes through maritime shipping companies like Navios with the tonnage growing steadily year over year. The bulk cargo market is tight and Navious is expanding its fleet to take advantage of this market with new fuel-efficient ships.

Currently Navios’ container ships are at an all time high demand price, with 99% of available shipping days already filled for the remainder of the year– and charter rates are at an all time high. Drybulk carriers only have 24% available days used, which is 8% below the 20 year average. Tankers are sitting at 53% of available days used which is 14% below the 20 year average. Altogether, this amounts to around $20,386 net per day per ship – a 37.4% increase year over year. While this seems low, Navios increased the number of vessels in its fleet by 163% since FY2020. With this favorable price advantage and increase to demand for shipping Navios has increased its operating surplus by 265.3% year over year.

For the remainder of the year, Navios has 55.4% days reserved, exceeding operating expenses by $69.3 million with 45% of days still open for spot contracts or new long-term contracts.

Many of the contracts extend past the 5 year investment horizon with revenue guaranteeing at least $2.8 billion in revenue to 2027. Navios requires $1.4 billion as a “breakeven” cummulative revenue target over the same period.

Expansion

Navios is acquiring 4 in-progress oil tankers, totaling 115,000 extra DWT. These investments are expected to yield 10% per year, with a 20 year useful life. Additionally, Navios will acquire 2 new 7,700 TEU cargo ships being completed in 2025. This is already on top of the 22 (17.2% of fleet) new ships Navios is expected to have delivered by 1Q25, and the 83 vessels acquired since FY2020.

As previously mentioned Navios maintains a loan-to-value of 28.5% for vessels in the water, which is at the sector average, impressive given its fast expansion.

Navios is made up of several companies with various roles, however, most of them (most recently Navios Maritime Acquisition) have been absorbed into NMM per an initiative to simplify the structure of NMM. The final contract expiration of the parent company Navios Maritime Holdings’ own charters occurs in 2024. It is possible that then NMM may absorb the parent company to become a single-ticker-traded entity encompassing the entire Navios Group – the impacts of this would be minimal on operation, but may have additional value-added implications for investors.

Risk

Navios was adversely affected by demand shocks that happened during COVID-19, where supply was high but demand was low. Navios depends on continued demand growth for international goods and should demand fall it could adversely affect the bottom line. COVID-19, related supply chain chokes, and inflation have all resulted in volatility in charter markets. While international shipping is semi-seasonal, a decrease in the targeted long-term contracts may mean Navios has to compete in the spot market where pricing may be adverse.

Should a Navios vessel run aground, sink, be damaged, or another unforeseen event it could be disastrous legally, financially, and environmentally. As more carriers target net-zero or decreased emissions Navios may see a drop in demand for its older fleet of ships that use a much harsher bunkering fuel or are not able to be equipped with appropriate scrubbing equipment.

Additional Comparisons

Estimated Next 12 Months

Price-to-Book

Dividend Yield

Price-to-Sales

Price-to-Earnings

Navios Maritime Partners (NMM)

0.5

0.8%

0.6

1.4

Kawasi Kisen Kaisha (KAIKY)

0.6

7.1%

0.9

1.3

Mitsuio O.S.K. Lines (MSLOY)

0.5

13.7%

0.8

1.8

Safe Bulkers (SB)

0.7

0.0%

1.4

3.1

Eagle Bulk (EGLE)

0.9

11.3%

1.4

3.4

Wisdom Maritime Lines (2637.TW)

1.3

11.0%

1.8

4.0

Genco Shipping & Trading (GNK)

1.0

19.1%

1.8

4.2

Star Bulk Carriers (SBLK)

1.1

22.9%

2.2

4.6