Wednesday, January 14, 2015

Navios Maritime Acquisition - Economic Results Are Quite Different From Accounting Ones

The company

Navios Maritime Acquisition (ticker: NYSE: NNA) is an owner and operator of tanker vessels. The company transports petroleum products, bulk liquid chemicals and crude oil. At the end of the third quarter 2014 it owned eight LR1 vessels, seventeen MR2 tankers, four chemical / product tankers and seven VLCC tankers.  For those looking for more info about NNA, please, refer to my article on the Seeking Alpha website.

In this post I would like to focus on a few economic aspects of NNA's operations.

Financial measures

The table below shows three basic measures, distinctive of shipping industry:
  • time charter equivalent per day
  • costs per vessel per day
  • netback
Simply put, time charter equivalent per day is the amount of money the vessel earns daily - generally, it is a market measure, which means that a shipping company is not able to impose its own time charter rates.

Costs per vessel comprise all expenses the shipping company bears daily per each vessel it owns (operating, financial and other expenses).

Netback is the difference between the above described measures - it shows whether the company earns money on its vessels or it does not.

After many years of negative netbacks, finally in the third quarter 2014 NNA recorded the positive netback. Of course we cannot be sure that Navios would be a profitable company from now on but...well,  at least we notice something positive after many years of troubles.

Another thing. Since 2010 (the year when NNA started its operations) the company has been incurring losses. The main reasons for that were:

- low spot (and charter) rates recorded in the industry (table below)

- high management fees paid by NNA to its fleet manager - these fees are fixed and when there are low rates in the industry, the company is being hard hit by management fees (but when charter rates are high we observe the positive effects of the operating leverage with management fees weighing less and less)

- development expenses - NNA is relatively a new company so building its fleet took some time. Today, having 36 vessels in the water and 5 newbuildings contracted, NNA is operating on a much larger scale.
Economic income (noplat)

To prove that the company is developing properly, please, look at the table below:

The table shows the economic income and net income (loss). Due to reasons described above, NNA has been accumulating net losses since the start of its operations. But the business of the company has been developing quite aggressively - since 2011 the company has accumulated nearly $200 million of noplat (economic income).

Cash flow from operations

What is more, the company has been consistently increasing its cash flow from operations  - the table below pictures it:

During three quarters of 2014, NNA's cash flow has been higher than that generated in 2012 and 2013.

Share prices action

The company is prized by the market - since October 2014 NNA shares have been appreciating quite aggressively - please, look at the chart below:


Finally, after many years of building its fleet during unfavorable market conditions, Navios Maritime Acquisition seems to be going out of troubles. Despite accounting losses, the company has been accumulating quite a high economic income (noplat). This, together with a bigger fleet of new and modern vessels, should, in my opinion, favor this company against its peers.


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