By
The Wall Street Flaneur
:
Globalization. Exports. Emerging markets. Buzzwords repeated
almost haphazardly by the talking heads, pundits and experts on TV
and in the Wall Street Journal. Repeated so much so that we, the
investing public, often take them for granted. We accept that
globalization is happening. We accept that the world is getting
smaller. We see the "Made in China" sticker on seemingly everything
we buy. But how does this new economy actually work in practice?
How do these "globalized" economies really interact? What makes
this new reality move?
The answer of course, is ships. Really big ships. Ships that can
carry over 180 thousand tons of goods (equivalent to 45,000
elephants). Ships that can be too large to make passage through the
Panama or the Suez canals. Some so large they could transport the
entire
Sears Tower
laid down on its side-all 1,454 feet and 440 million pounds of it.
These are the backbone of globalization-moving iron, fertilizer,
grain, finished goods, and everything else circulating in the
global economy.
Today we highlight a company that owns and operates really big
ships. This company has strong cash flow, a solid balance sheet,
and a history of very big dividends.
Navios Maritime Partners - Big Ships. Big
Dividends
Navios Maritime Partners L.P. (
NMM
), a global dry cargo operator, transports an assortment of dry
bulk goods around the world, with strong market presence in Europe,
Asia, North America and South America. The company owns a fleet of
21 dry bulk vessels, including two
Ultra Handymax
. In addition to operating their fleet, they strategically charter
certain vessels to enhance cash flow and stabilize revenue.
NMM is fundamentally sound, has positive trends in all
significant financial metrics, and is a solid value play for the
long term. Further, since the stock has dipped significantly since
the Q2 ex-dividend date on 8/8/2012, buying now is an opportunity
to buy into the Q3 dividend at a discount.
The fundamental financial performance is the core of this
recommendation. NMM has positive trends in revenue, net income,
EBITDA, and operating cash flow. The company has a strong balance
sheet both in the current accounts and for the long term. Based on
this, we anticipate a continued strong dividend and recommend
buying on dips while the stock is less than $15.
Revenue has increased 149% from $75 million for year end 2008 to
$187 million for 12/31/2011. Earnings have increased 132% from $29
million to $61 million over the same time period. Even more
significant for the continuation of the dividend is the 205%
increase in Cash Flow from Operations from $42 million to $127
million. We expect these trends to continue as the company is
proactively positioning itself for growth. It should be noted that
earnings as a percentage of revenue decreased in FY 2011 driven
primarily by increased depreciation expense related to the
acquisition of 8 vessels during the fiscal year. We anticipate this
trend to reverse as these charters begin generating their full
revenue potential; however, continued acquisitions could result in
a lower net income margin on a go-forward basis.
In the 6 months ending 6/30/2012, the company purchased three
new vessels with estimated impact of $12.8 million increase to
annual EBITDA and $9.3 million increase to annual operating cash
flow. This investment will net a baseline 8% return on investment
($9.3M operating cash flow increase divided by $116M investment)
and 13% return on equity ($9.3M operating cash flow increase
divided by $72.1M equity in the acquisitions). These return figures
will likely be higher as the largest of the acquisitions, the $67.5
million purchase of the Navios Buena Ventura, includes a 50/50
profit sharing agreement when certain conditions are met.
click to enlarge
Interim 2012 results have continued the positive trend:
- Increase in cash distribution to $0.4425 per unit for Q2
2012
- 7.4% increase in quarterly Revenue to $49.1 million
- 18.2% increase in quarterly EBITDA to $36.4 million
- 2.8% increase in quarterly Operating Surplus to $29.5
million
- 23.7% increase in quarterly Net Income to $16.7 million
The company's balance sheet has a reasonable amount of leverage,
adequate working capital, and sufficient cash to support a
continued dividend payout. Long term debt is at a reasonable level
with a Long Term Debt to Equity ratio of 0.45. Quarterly interest
coverage is 7 times, showing that there currently is no significant
risk of default and debt levels are appropriate relative to both
capital and cash flow. The company has a quick ratio of 1.13 and
cash ratio of 0.81 (excluding restricted cash-including would
improve the cash ratio to 1.03), primarily driven by a cash
position of $41 million and total current liabilities of $50.6
million. At these levels, the cash in the company is sufficient to
continue day-to-day operations and cash flow is sufficient to fund
growth, thus allowing for continued dividends.
The company paid a $0.44 dividend per share for Q2 (12.2% yield)
on 8/13/2012 for owners as of 8/8. The passing of the ex-dividend
date spurred the stock to drop from $15.2 to $13.98 (an 8%
overnight decrease). The 5 year average dividend yield is 11.33%,
and dividend per share has increased every year since the IPO (a
67% increase from 2008). We anticipate this dividend to continue.
Cash flow generation is more than sufficient, the balance sheet is
strong and supports the payout, and the company's management and
board have a history of distributing excess cash back to
shareholders.
NMM is structured as a
limited partnership
. As such, the company does raise new capital through equity
offerings from time to time. Because of this, we expect earnings
per share to remain flat and the stock price to remain at or near
its current range ($13-$17). This is acceptable, as the returns
from this stock will be driven by the dividend. Further, the tax
advantage of the limited partnership structure is that the dividend
payments will be taxed on IRS Form 1099 and will avoid the
"double taxation" of C-Corps
.
Navios Maritime Partners has a strong balance sheet, excellent
cash flow, and positive financial trends in all key metrics. The
company has a conservative management philosophy with appropriate
leverage, a stable growth strategy and is structured for tax
advantages. The WSF recommends accumulating this stock below $15
per share over time with returns generated from future
dividends.
Disclaimer: As with any investment, we recommend you
consult with your personal financial advisor before taking any
position.
Disclosure:
I am long [[NMM]]. 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.
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Joy Global: Shares Are Suffering From A More Severe
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on seekingalpha.com