Navios Maritime Holdings Inc. (NM)

[Condor65]

Navios Maritime Holdings Revisited

http://seekingalpha.com/article/3977797-navios-maritime-holdings-revisited?source=intbrokers_regular

( SORRY, I CAN'T LINK THE DIAGRAMS )

By Norman Roberts (SeekingAlpha)

Summary

- Preferred, fixed income investing offers a way to convert the worst of times to potentially the best of times.

- Navios Maritime Holdings: Is it the right time to invest in their preferred equities?

- Recent conference call signals potential Navios survival.

- Months later and I remain encouraged that Navios will eventually survive and prosper.

Several months ago I submitted one of my first articles written from the perspective of a preferred investor. At the time, as is now, Navios Maritime Holdings (NYSE:NM)was facing an existential threat, primarily because of the historically low Baltic Dry Index, BDI, dry bulk shipping rates. Because I held a large position in the preferred shares of NM, I was greatly concerned. However, that concern was tempered by knowledge of this holding company, which consisted of several subsidiaries that ultimately made it something more than just a dry bulk shipper. I was also encouraged by what I had heard about NM's CEO, Angeliki Frangou, who appeared to be eminently qualified and well connected within the industry. Consequently, I proposed the low $-wise risk investment, noting that the play was otherwise of great risk and even greater reward.

This morning I listened to the Navios CC, whose shares as late as yesterday were beaten down to prices even below when I first posted the original article. After the CC and all this morning shares of NM-H, NM-G and their bonds have staged nice, although modest recovery. Navios still faces existential threat for sure, but as before, I'm wagering that Navios will survive and eventually prosper. Below are some of the reasons why I believe so. Time will tell.

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For those interested I have provided a link to the conference call where you might gain access to a repeat of the session. To be honest, in a day or two a SA transcript will most probably be made available, which will be more understandable and easily followed. Then with the link I have just provided, you can follow along with the attendant PDF.

We are playing in a zero-sum game on a field filled with winners and losers. Over the past year and a half, especially in the E&P oil sector, there have been a tremendous number of losers, me included. Also during this time, the shipping sector, specifically dry bulk and container shipping, has similarly faced an increasingly difficult market, which has wreaked havoc on the share prices of shippers, Navios Maritime Holdings (NYSE:NM) in particular, along with others in this sector: Global Ship Lease (NYSE:GSL), Navios Maritime (NYSE:NMM), Coastamare (NYSE:CMRE), Safe Bulkers (NYSE:SB), Box Ships (NYSE:TEU), and International Shipholding (OTCQX:ISHC). These among others are suffering as a result of a slumping global economy, the fall of China's GDP, European economic stagnation, and the ever-present and rapid decline of the price of oil. For those of us who held any of these positions, and held on to them during their fall, it certainly has been the worst of times. However, because we are playing in this zero-sum game, it can quite possibly be the best of times.

Warren Buffett, the "Oracle of Omaha," often preached that smart investors ran toward the market when many were running away. Because I'm primarily a preferred investor, I have found this to be an excellent opportunity to buy preferred shares at bargain basement prices. Recently, the two sectors of the economy hardest hit have been energy and shipping. More specifically upstream oil E&P's and drybulk and container shippers. Frankly, I no longer trust the oil E&P's, wildcatters, true to their name. Those cats have done me in. Thank you, Gary Evans, the CEO of Magnum Hunter (OTCPK:MHRCQ) and Green Hunter Resources (NYSEMKT:GRH), which are now in bankruptcy. As is Miller Energy Resources (NYSE:MILL). However, although shaky, I still have faith in some of the beaten-down shipping companies, which you might want to take a flyer on provided you can afford to lose the amount you are willing to risk. In this article I will focus on the possibility of investing in the preferred equities of Navios Maritime Holdings. However, before investing, I urge careful due diligence starting with a visit to the Navios Website.

I particularly like NM for its diversity, although I'm concerned about the amount of debt it carries, which at present stands 1.53 times its equity. Furthermore, its latest common share price fell to 83 cents, meaning it could be facing the possibility of being de-listed. However, I believe it has a good chance to survive in spite of the fact it's primarily a drybulk shipper, (currently a horrendous segment of the shipping sector) it's also a holding company invested in subsidiaries Navios Maritime Acquisition (NYSE:NNA), Navios Maritime Partners , Navios South American Logistics (NSAL), and Navios Maritime Midstream Partners (NYSE:NAP), which through an assorted combination of potential mergers, distributions, and/or loans might be able to keep NM afloat during these troubled times. This is quite possible because NM CEO Angeliki Frangou virtually controls the boards of all the subsidiaries.

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Currently, NM PRH is trading at $3.05/share and NM PRG at $3.49, each offering a tremendous yield and upside potential. If and when the drybulk market solidifies, the preferred share price may near its normal trading range of around $25.00 per share. Beyond the volatility in the market the recent suspension of dividends for both common and preferred shares has resulted in the remarkably low share prices. However, the preferred dividend payments are cumulative and all missed payments will have to be completely made up before common shareholders can begin receiving dividends again.

Risk/reward? I see relatively little risk at the current prices should the company go belly-up. However the upside reward is tremendous offering incredibly high yield percentage and enormous price appreciation share appreciation should the drybulk sector stabilize and the company survive. Although this might take years, remember, should the company survive and prosper, all those missed dividend payments will be accruing and will have to be paid sometime in the future.

As outlined below, Navios has plans to weather the extremely challenging conditions facing today's drybulk shippers.

In conclusion, Navios has acted proactively to deal with the extreme volatility of a very challenging drybulk market. As mentioned above, the dividend suspension of both the common and preferred shares will save the company $41 million annually. They had approximately $177 million dollars in cash at the end of December; however, they are burning cash at a great rate, which is concerning. I like that all their logistics are handled in-house and their operating efficiency at 41% is below the industry average. In addition, NM has no bond payments due until 2019, and those bonds are unsecured. The first secured bond payments are not due until 2022. I first became interested in Navios when I learned of their extensive sources of credit and their ability to borrow money at terms, also, below the industry average. Considering the current bargain-basement pricing and the tremendous upside, I believe a reasonable investment, according to your investment criteria, might prove profitable over the long term.

Finally, for those still to wary of a preferred investment, I suggest researching Navios' bonds, which are a killer buy at present.

Disclosure: I am/we are long NM-H, NM-G, NM BONDS.

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.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.