A careful analysis of NM requires examination of its commercial and financial risks in the current financial crisis. NM recently has had its stock downgraded by several analysts. The company is carrying a large number of chartered in vessels in addition to owned fleet. NM has made a sizeable investment in coastal South American trading. In the long run, NM may be poised for growth. Short term if dry bulk market conditions do not improve and South America has a hard landing in the current financial crisis, management may have its hands full. A lot depends on the length and severity of the market downturn in the dry cargo sector as well as the general financial crisis.
NM has an interesting logistics model that differentiates them from many other publicly listed dry bulk operators. Navios was originally a spin off of US steel has a reputation of being one of the most sophisticated dry cargo operators in the market place.
Bought out a few years ago by Greek shipping interests through a SPAC, the new management acquired last year Horamar, an Argentinean company in the market of inland waterway cargo transportation in South America with a fleet of more than 100 vessels.
NM stock started to slump after this acquisition. Several analysts like Natasha Boyden of Cantor expressed disappointment. Boyden felt that the company’s complexity and opaque accounting treatment was often discouraging to investors.
The latest quarterly earnings report that came out last November indicates a reasonable debt/ equity ratio and good term employment through 2009 starting to fall a bit in 2010 unless renegotiated earlier.
Navios in fact controls a much larger fleet of 53 vessels of which 25 are owned and 28 are chartered in. The chartered in vessels are an additional liability in poor market conditions as there is the risk that voyage results may be less than the charter rates that NM has to pay out. This was the main reason for the recent Britannia Bulk bankruptcy. In such case, NM could be exposed to possible trading losses, drain on free cash flow and face the need to renegotiate charter rates with owners under threat of bankruptcy proceedings such as the Armada Group in Singapore.
Recent economic articles indicate that South America may face new difficulties in the financial crisis. Ecuador is in financial default and Argentina, where Horamar is established, is one of the economically weaker countries in the region. Further debt defaults in the region may affect adversely their inland transport business. There may be increased political instability with populist governments in Venezuela, Bolivia and Ecuador spreading to other countries in the region.
South America is definitely an emerging market growth story with long-term potential. Of course, Navios has some valuable end user client relationships and a solid customer base.
NM has an interesting logistics model that differentiates them from many other publicly listed dry bulk operators. Navios was originally a spin off of US steel has a reputation of being one of the most sophisticated dry cargo operators in the market place.
Bought out a few years ago by Greek shipping interests through a SPAC, the new management acquired last year Horamar, an Argentinean company in the market of inland waterway cargo transportation in South America with a fleet of more than 100 vessels.
NM stock started to slump after this acquisition. Several analysts like Natasha Boyden of Cantor expressed disappointment. Boyden felt that the company’s complexity and opaque accounting treatment was often discouraging to investors.
The latest quarterly earnings report that came out last November indicates a reasonable debt/ equity ratio and good term employment through 2009 starting to fall a bit in 2010 unless renegotiated earlier.
Navios in fact controls a much larger fleet of 53 vessels of which 25 are owned and 28 are chartered in. The chartered in vessels are an additional liability in poor market conditions as there is the risk that voyage results may be less than the charter rates that NM has to pay out. This was the main reason for the recent Britannia Bulk bankruptcy. In such case, NM could be exposed to possible trading losses, drain on free cash flow and face the need to renegotiate charter rates with owners under threat of bankruptcy proceedings such as the Armada Group in Singapore.
Recent economic articles indicate that South America may face new difficulties in the financial crisis. Ecuador is in financial default and Argentina, where Horamar is established, is one of the economically weaker countries in the region. Further debt defaults in the region may affect adversely their inland transport business. There may be increased political instability with populist governments in Venezuela, Bolivia and Ecuador spreading to other countries in the region.
South America is definitely an emerging market growth story with long-term potential. Of course, Navios has some valuable end user client relationships and a solid customer base.
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