NVGS - Navigator Gas

[RadMan24]

Yeah - rates have come down, stealthgas provides some context of what current rates are for various ship sizes, including handysize. These are fairly average rates, petro chem rates are higher and lpg may be a little lower given the current market.

 

Navigator has 12 ships doing petrochemical trades right now, up significantly from prior year. Lpg is down, but I don't think it will get much worse from here.

 

Any announcement of an ethylene terminal will be huge for Naviagtor. One middle size 37,500 cbm ship that is contracted to Borealis has been delayed since Mariner East 2 pipeline delayed to middle of 2017. Not sure if they will pick up any additional cargo up till that date, which could be a drag on earnings.

 

Basically the 20% rate hair cut has happened, so the cash earnings per share minus capex is around a dollar per share. Hopefully the utilization rate improves going forward, we'll see.

[Foreign Tuffett]

I dislike investing in shipping in general, but this does look cheap. However, I have zero ability to predict handy size LPG shipping charter rates and so this may belong in the "too hard" pile.

[RadMan24]

True - albeit the rates have held in a steady range for a decade, unlike VLGCs. You can find rate info and other tidbits in the Sept. presentation https://navigatorgas.datadial.info/wp-content/uploads/2015/12/September-2016-Update.pdf

 

The 10k and S-1 are also good sources of info on the industry and company in general. Seekingalpha has transcripts which give you an idea of why Butters does not view this company as a "shipping" company but in a "niche" segment of the industry.

 

 

[muscleman]

The biggest asset of this company is 1.2 bn worth of handysize vessels. The D&A is about 60 M a year.

Does anyone know about the depreciation characteristics of these vessels?

 

I know hard assets like buildings and gas pipelines don't really depreciate that much. They just need a small amount of capex a year to maintain. How about vessels?

 

 

In addition, could anyone please let me know where Buffet said he thinks this shipping sector has moat and why?

 

 

Thanks a lot!

[Travis Wiedower]

The biggest asset of this company is 1.2 bn worth of handysize vessels. The D&A is about 60 M a year.

Does anyone know about the depreciation characteristics of these vessels?

 

I know hard assets like buildings and gas pipelines don't really depreciate that much. They just need a small amount of capex a year to maintain. How about vessels?

 

Management has estimated their drydocking expenses per handysize ship are $800k year 5, $1.2M year 10, $1.75M year 15, and then every 2.5 years after that for I think $1-2M each time. Normalize those costs for each ship over the entire fleet and you can get an idea of what their normalized maintenance capex is.

[muscleman]

The biggest asset of this company is 1.2 bn worth of handysize vessels. The D&A is about 60 M a year.

Does anyone know about the depreciation characteristics of these vessels?

 

I know hard assets like buildings and gas pipelines don't really depreciate that much. They just need a small amount of capex a year to maintain. How about vessels?

 

Management has estimated their drydocking expenses per handysize ship are $800k year 5, $1.2M year 10, $1.75M year 15, and then every 2.5 years after that for I think $1-2M each time. Normalize those costs for each ship over the entire fleet and you can get an idea of what their normalized maintenance capex is.

 

Thank you! Does this include depreciation? I mean, if I own the ship and I spend 1-2M per year, can I operate these ships for the next 100 years? Or will the ship become too old at some point and I have to replace it?

 

 

[Haasje]

there's upkeep CapEx and after 15 years earnings drop quite a bit (at least with the current fleet) between 15-25 ships are scrapped. When exactly depends on spot prices and scrap metal prices. If scrap prices are awesome you can get like 1/3rd 1/4th of purchase price back, when scrap sucks (like now) you get like 10%-15% of new price I think. Could be off by quite a bit though as I'm not an industry insider.

[muscleman]

there's upkeep CapEx and after 15 years earnings drop quite a bit (at least with the current fleet) between 15-25 ships are scrapped. When exactly depends on spot prices and scrap metal prices. If scrap prices are awesome you can get like 1/3rd 1/4th of purchase price back, when scrap sucks (like now) you get like 10%-15% of new price I think. Could be off by quite a bit though as I'm not an industry insider.

 

Thank you! WIKI says cargo ships usually have 25-30 years of life. Do you think these high pressure tank ships have less life?

 

From their 20-F: "Depreciation and amortization expense included amortization of capitalized drydocking costs of $5.6 million for the year ended December 31, 2015, and $3.9 million for the year ended December 31, 2014."

 

"Depreciation and Amortization. Depreciation and amortization expense consists of:

 

• charges related to the depreciation of the historical cost of our fleet (or the revalued amount), less the estimated residual value of our vessels, calculated on a straight-line basis over their useful life, which is estimated to be 30 years; and

 

• charges related to the amortization of capitalized drydocking expenditures relating to our fleet over the period between drydockings."

 

 

So 1.2 bn over 30 years is 40 m a year. Their dry docking cost, amortized was 5.6 m. Note that I assumed all ships are brand new, which is wrong, so if I assume all ships are 10 years old, then there are 20 more years to go, so each year's D is about 60 M.

 

Their D&A figures imply that the average age of the fleet is about 5 years.

https://navigatorgas.datadial.info/wp-content/uploads/2015/12/September-2016-Update.pdf

 

Page 20 has the vessel ages.

 

So it seems like the EPS is about the same as long term average FCF. ROIC is about 7-9%. Not that great.

 

 

 

 

 

 

[RadMan24]

The biggest asset of this company is 1.2 bn worth of handysize vessels. The D&A is about 60 M a year.

Does anyone know about the depreciation characteristics of these vessels?

 

I know hard assets like buildings and gas pipelines don't really depreciate that much. They just need a small amount of capex a year to maintain. How about vessels?

 

Management has estimated their drydocking expenses per handysize ship are $800k year 5, $1.2M year 10, $1.75M year 15, and then every 2.5 years after that for I think $1-2M each time. Normalize those costs for each ship over the entire fleet and you can get an idea of what their normalized maintenance capex is.

 

To get the "normalized" capex which includes depreciation expense amortized over life of vessels, add the depreciation of vessels over a 30 year period using purchase price of the vessel (readily found in filings). Then add drydock expenses (they also give information on that in their filings). Depending how you calculate it, capex should be around $30-40 million a year.

 

As a side note, lower bunker fuel prices and the possibility to use cargo fuel (lng or ethane) for shipping fuel will help lower operaring expenses and provide flexibility moving forward.

[LR1400]

Gabelli reiterated how the stock was cheap multiple times. He has backed up his statement. I am inclined to invest, as the company appears to be trading for much less than replacement value and less than adjusted net asset values I did "back of the envelope".

 

I need to read a few more transcripts from the CEO. I feel pretty good about it being a part of a diversified group of cheap businesses though.

[muscleman]

The biggest asset of this company is 1.2 bn worth of handysize vessels. The D&A is about 60 M a year.

Does anyone know about the depreciation characteristics of these vessels?

 

I know hard assets like buildings and gas pipelines don't really depreciate that much. They just need a small amount of capex a year to maintain. How about vessels?

 

Management has estimated their drydocking expenses per handysize ship are $800k year 5, $1.2M year 10, $1.75M year 15, and then every 2.5 years after that for I think $1-2M each time. Normalize those costs for each ship over the entire fleet and you can get an idea of what their normalized maintenance capex is.

 

To get the "normalized" capex which includes depreciation expense amortized over life of vessels, add the depreciation of vessels over a 30 year period using purchase price of the vessel (readily found in filings). Then add drydock expenses (they also give information on that in their filings). Depending how you calculate it, capex should be around $30-40 million a year.

 

As a side note, lower bunker fuel prices and the possibility to use cargo fuel (lng or ethane) for shipping fuel will help lower operaring expenses and provide flexibility moving forward.

 

The D&A right now is about 60 M. Their accountants already use 30 year depreciation for the vessels. What made you think long term normalized capex would be only 30-40 million?

 

Another question, could anyone please let me know why Buffet thinks this sector has a niche? Thanks a lot!!