Fleet Operator Navigator Holdings Fueled For Growth

By
A A A

Much of the excitement over the U.S. shale oil and gas boom has centered on the impact it will have on domestic supplies. But not all of that fuel will stop at the borders.

Some of the oil and gas being extracted from states such as Pennsylvania, the Dakotas, Texas and Wyoming will make its way overseas.

One company that has been moving into international markets isNavigator Holdings ( NVGS ), which owns and operates the world's largest fleet of handysize liquefied gas carriers.

Handysize ships measure 15,000 to 20,000 cubic meters and are designed to get into smaller ports. Navigator's fleet transports liquefied petroleum gases ( LPG ) such as propane and butane as well as ammonia and petrochemical gases like ethylene and propylene.

The fleet consists of 36 semi- or fully refrigerated liquefied gas carriers, including 13 "newbuildings" -- industry speak for new vessels -- scheduled for delivery by the end of December 2016.

'Top Consolidator'

Navigator, which went public in November, has built a reputation in its niche for aggressively expanding its fleet through both buyouts and internal growth initiatives.

That niche -- medium-size LPG carriers -- has "a very attractive demand/supply outlook," said Natasha Boyden, senior analyst at MLV & Co.

"Navigator is quickly becoming the top consolidator in this segment and will be the largest owner/operator of medium LPG carriers once its newbuild schedule is complete by 2016," Boyden noted.

Enthusiasm over the company's growth prospects have helped its stock price rise roughly 40% since debuting at 19 on Nov. 21.

Navigator's shares popped 12% on April 23 after the company exercised an option to build three more 35,000-cubic-meter semi-refrigerated liquefied gas carriers, capable of carrying ethylene and ethane, in addition to another vessel already under construction. They will be built at the Jiangnan Shipyard in China for $78.4 million each.

The new vessels are being built because of the expectation that large exports of ethane will become available from surplus U.S. shale gas production.

U.S. ethane is attractive to global petrochemical firms because of its low cost compared to supplies in other regions.

One benefit of Navigator's decision to exercise its options is that the new carriers meet one of the company's target growth initiatives, says Evercore analyst Jonathan Chappell.

Another benefit is the timing of the decision. It occurred one day afterEnterprise Products Partners ( EPD ) announced plans to build the largest ethane-export facility in the world, with startup due for the second half of 2016 in the Gulf of Mexico.

"Although Navigator has not signed long-term contracts yet for the new vessels, management remains confident that contracts of at least 10 years for these assets are near completion, with export facilities in the East Coast and now the Gulf likely to add to demand," Chappell noted in a report.

The Enterprise facility is designed to have an aggregate loading rate of around 10,000 barrels an hour, or up to 240,000 a day.

According to Chappell, Navigator estimates that the facility will require 37 carriers with a 200,000-barrel capacity to transport the ethane from the Gulf of Mexico to Europe.

"There are very few ethane-capable carriers in the market today of this size, with Navigator's four contracted newbuildings putting it in a strong relative competitive position within this burgeoning trade," Chappell said.

Navigator competes in an industry with a variety of different players, most of which specialize in tankers and large vessels rather than handysize ships.

Other shippers that transport LPG, petroleum and petrochemical products includeFrontline ( FRO ),StealthGas ( GASS ) andArdmore Shipping (ASC).

Navigator's growth depends "not only on its ability to expand relationships with existing customers, but also to obtain new ones where there is significant competition," analyst Boyden said.

"The process of obtaining new charters is highly competitive and generally involves intensive screening and competitive bids that extend for several months," she added.

Morgan Stanley analyst Fotis Giannakoulis says Navigator holds a "dominant position" in the premium semi-refrigerated gas-carrier market with a share of 30%.

In addition, he noted, "gas carriers are set to benefit from the U.S. shale gas boom, which should produce price arbitrage opportunities for long-distance exports, driving demand."

Six Big Clients

More than half of Navigator's revenue last year came from six customers. According to Boyden, the two biggest were Pertamina, a state-owned oil and gas company in Indonesia, and Tomza Group, a Mexican LPG distributor.

Financially, Navigator has built a record of delivering consistent double-digit growth on the top and bottom lines.

Last month it reported first-quarter revenue of $69.8 million, up 65% from the prior year. Net income more than doubled to $16.9 million. Earnings before income taxes, depreciation and amortization climbed to $35.9 million from $20.7 million a year earlier.

Analysts polled by Thomson Reuters expect Navigator to report full-year EPS of $1.44 in 2014 and $2 in 2015.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: NVGS , LPG , EPD , FRO , GASS

Investor's Business Daily

Investor's Business Daily

More from Investor's Business Daily:

Related Videos

Stocks

Referenced

Most Active by Volume

35,512,035
  • $15.525 ▲ 0.03%
26,426,231
  • $69.24 ▼ 0.23%
25,797,508
  • $94.44 ▲ 0.53%
24,834,204
  • $2.62 ▲ 18.55%
22,649,164
  • $3.815 ▲ 0.93%
22,485,579
  • $34.61 ▲ 1.61%
20,941,816
  • $44.925 ▲ 0.20%
20,111,917
  • $10.13 ▼ 0.59%
As of 7/22/2014, 01:15 PM