navios maritime acquisition corporation (nma)

Navios Maritime Acquisition Corporation (NNA) LONG POSITION: $6.79 PRICE TARGET

SAM KAPLAN

4/6/2014

SAGEHEN CAPITAL MANAGEMENT

Where Are We? •29.6% returns in the S&P 500 Index in 2013

•The Fed sustains interest rates at artificially low levels (2.77%)

•Facebook bought a company with no revenues for $2 billion

•Seth Klarman: “There is a growing gap between the financial markets and the real economy”

•Where can we find undervaluation?

•Shipping


Executive Summary 1. Thesis

2. The Shipping Industry

3. About Navios

4. Valuation

5. Risks

6. Questions


Investment Thesis 1. Crude and product tankers are in the early stages of a recovery

2. Navios Acquisition Corp. is a strong company with competitive advantages that will allow them to take advantage of business opportunities

3. Navios Acquisition Corp. is both relatively and intrinsically undervalued




3. About Navios

4. Valuation

5. Risks

6. Questions


Shipping •Stock prices, ship values and day rates near historical lows

•High operating leverage

•Crude crushed

•Geographic shift leading to longer routes


Capital Product Partners L.P. (CPLP)


Frontline Ltd. (FRO)


Teekay Tankers Ltd. (TNK)


Tsakos Energy Navigation Limited (TNP)


DHT Holdings, Inc. (DHT)


What Happened? •The tanker industry was booming between 2000 and 2008

•Shipping companies began ordering more ships

•Ships take approximately 2 years to build

•Financial Crisis

•Industry utilization hit bottom in 2011


Impact on Crude Tanker Industry


1000

1500

2000

2500

3000

3500

Crude Tanker Supply and Demand (DWT)

Demand in Terms of DWT Supply in Terms of DWT

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

105.0%

Crude Tanker Implied Utilization (DWT)

Impact on Product Tanker Industry


10,000

15,000

20,000

25,000

30,000

35,000

Product Tanker Supply and Demand (DWT)

Demand in Terms of DWT Supply in Terms of DWT

70.0%

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

105.0%

Product Tanker Implied Utilization (DWT)

Industry Order Book


What Next for Crude Tankers? •Global oil imports are expected to increase 1.4% in 2014, due to declining US imports and expanding Asian imports

•China’s oil consumption increased at a 16% compounded annual growth rate between 2009 and 2013

•81% of the 387 million metric tons of spot crude oil shipped by VLCCs in 2013 was discharged in Asia

•Imports to Asia require longer shipping distances

•Current crude tanker spot rates are 50% below the 10-year average

•Increasing support for the repeal of the ban on US crude exports

•Contango


Historical and Expected Crude Oil Trade


Increasing Shipping Distances


Spot Rates Near Historical Lows


Crude Tanker Values Near Historic Lows


Contango


What Next for Product Tankers? •Refinery capacity is expected to increase by 9.5 million barrels per day between 2013 and 2018

•Approximately 80% of this capacity will be added in the broader Asia and Middle East regions

•New low-cost Asian and Middle Eastern capacity is forcing closures of old high-cost OECD capacity, which structurally favors more long –haul products trade

•Refined oil products ton mile growth is expected to outpace the demand for refined oil products, increasing the demand for product tankers

•Since US crude exports are banned, product exports have increased with crude production

•Current product tanker day rates are 36% below the 10 year average


Longer Routes




3. About Navios

4. Valuation

5. Risks

6. Questions


Company Overview •Spun off from Navios Maritime Holdings Inc. in 2008 (Navios Maritime still has 47.8% of voting power and 50.5% of the economic interest)

•Charters its vessels to international oil companies, refineries, and large vessel operators under long, medium and short-term charters

•Operate 10 VLCCs, 8 LR1s, 21 MR2s, and 4 Chemical Tankers

•Focus in Asia

•560M Market Cap


Geographic Composition


78.3%

11.8%

9.9%

Revenues by Geographic Region

% Asia % Europe % United States

Fleet Composition


23%

19% 49%

9%

By Number of Vessel

VLCC LR1 MR2 Chemical Tankers

58%

15%

24%

3%

By DWT Capacity

VLCC LR1 MR2 Chemical Tankers

Competitive Advantages •Modern, High-Quality Fleet

•Diversified Fleet

•Capitalize on Low Vessel Price

•High Quality Counterparties

•Experienced Management Team

•Competitive Cost Structure

•The Navios Brand and Network


Competitive Cost Structure


11644

7330

6330 6330

12060

8550 8340 7920

5000

6000

7000

8000

9000

10000

11000

12000

13000

VLCC Crude LR1 Product MR2 Product IMO II Chemical

Cost per Day

Navios Industry Average

3%

14%

24%

20%

0%

5%

10%

15%

20%

25%

30%

VLCC Crude LR1 Product MR2 Product IMO II Chemical

Navios Cost Advantage

Liquidity and Solvency

Liquidity: 2010 2011 2012 2013

Current Ratio 2.80 1.02 1.06 1.85

Quick Ratio 2.27 0.61 0.71 1.40

Adj. EBITDA/Interest 12.20 2.57 1.93 1.45

Solvency: 2010 2011 2012 2013

Total Liabilities/Assets 0.75 0.80 0.83 0.72

Total Liabilities/Equity 2.96 4.01 4.93 2.58

Debt/Capital 0.74 0.78 0.81 0.71




3. About Navios

4. Valuation

5. Risks

6. Questions


Public Comparables Analysis


$- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00

2013A EV/Revenues:

2014E EV/Revenues:

2013A EV/Adj. EBITDA:

2014E EV/Adj. EBITDA:

Public Comparables Analysis

Min to 25th 25th to Median Median to 75th 75th to Max

Discounted Cash Flow Analysis Assumptions •NNA increases fleet by 2 vessels per year

•NNA fleet composition remains constant

•Average day rate increases to $27.5 thousand per day by 2018 (management projects $31.2 thousand by 2016)

•Total utilization improves from 79.9% to 82.6% between 2013 and 2018 (management projections imply 95.9% by 2015)

•Available utilization falls from 99.6% to 97.0% between 2013 and 2018

•Cost per day is 15-17% above historical cost

•Value of vessels appreciate by 10% over a 5 year period

•Terminal Value is the aggregate value of ships owned

•WACC=7.09%


Acquisition Sensitivity


Implied Price:

9.31$ 43 46 49 52 55

9% 6.01 6.88 7.75 8.62 9.49

8% 6.72 7.63 8.54 9.45 10.36

7% 7.47 8.43 9.38 10.33 11.28

6% 8.27 9.26 10.26 11.26 12.26

5% 9.10 10.15 11.20 12.24 13.29

Estimated 2018 Number of Vessels

W

A

C

C

Implied Return:

43 46 49 52 55

9% 63% 86% 110% 134% 157%

8% 82% 107% 132% 156% 181%

7% 103% 128% 154% 180% 206%

6% 124% 151% 178% 205% 232%

5% 147% 175% 203% 232% 260%

Estimated 2018 Number of Vessels

W

A

C

C

Mean Min 25th Median 75th Max

Impled Price 9.43 6.01 8.27 9.38 10.36 13.29

Implied Return 155% 63% 124% 154% 181% 260%

Vessel Appreciation Sensitivity


Implied Price:

9.31$ 0% 5.0% 10.0% 15.0% 20.0%

9% 6.46 7.10 7.75 8.39 9.04

8% 7.19 7.87 8.54 9.22 9.89

7% 7.97 8.67 9.38 10.09 10.79

6% 8.78 9.52 10.26 11.00 11.74

5% 9.64 10.42 11.20 11.97 12.75

Vessel Price Appreciation

W

A

C

C

Implied Return:

0% 5% 10% 15% 20%

9% 75% 93% 110% 127% 145%

8% 95% 113% 132% 150% 168%

7% 116% 135% 154% 173% 193%

6% 138% 158% 178% 198% 218%

5% 161% 182% 203% 224% 246%

Vessel Price Appreciation

W

A

C

C

Mean Min 25th Median 75th Max

Implied Price 9.43 6.46 8.39 9.38 10.42 12.75

Implied Return 155% 75% 127% 154% 182% 246%

Public Comparables and DCF Valuation


$- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00

2013A EV/Adj. EBITDA:

2014E EV/Adj. EBITDA:

Discounted Cash Flow:

Min to 25th 25th to Median Median to 75th 75th to Max

Price Target


Median Price Target: $17.78

Years 1 2 3 4 5

Annual Return 382% 120% 69% 48% 37%

1st Quartile Price Target: $6.79

Years 1 2 3 4 5

Annual Return 84% 36% 23% 16% 13%



3. About Navios

4. Valuation

5. Risks

6. Questions


Risks •Day rates and vessel values take longer than 5 years to recover

•Navios cannot find attractive distressed acquisitions

•Asian demand and industry utilization do not increase as expected

•Unforeseen future regulation

•Drastic unexpected shift in crude and refined product consumption




3. About Navios

4. Valuation

5. Risks

6. Questions


Questions?


Appendix:



Income Statement:

Year Ended Dec. 31st 2010 2011 2012 2013

Revenue 33,568$ 121,925$ 151,097$ 202,397$

Time charter and voyage expenses (355) (3,499) (2,824) (6,762)

Direct vessel expenses - (633) (2,622) (3,096)

Gross profit 33,213 117,793 145,651 192,539

Management fees (entirely through related party transactions) (9,752) (35,679) (47,043) (71,392)

General and administrative expenses (4,042) (4,241) (3,853) (7,017)

Transaction costs (8,019) - - -

Depreciation and amortization (10,120) (38,638) (49,644) (63,880)

Operating income 1,280 39,235 45,111 50,250

Loss on bond and debt extinguishment (5,441) (935) - (33,973)

Interest income 862 1,414 445 315

Interest expenses and finance cost, net (10,651) (43,165) (49,432) (58,386)

Loss on sale of vessel - - - (21,098)

Other income 404 155 280 4,787

Other expense - (561) (202) (487)

Net loss (13,546) (3,857) (3,798) (58,592)


Common Sized Income Statement

Year Ended Dec. 31st 2010 2011 2012 2013

Revenue 100.0% 100.0% 100.0% 100.0%

Time charter and voyage expenses 1.1% 2.9% 1.9% 3.3%

Direct vessel expenses 0.0% 0.5% 1.7% 1.5%

Gross profit 98.9% 96.6% 96.4% 95.1%

Management fees (entirely through related party transactions) 29.1% 29.3% 31.1% 35.3%

General and administrative expenses 12.0% 3.5% 2.6% 3.5%

Transaction costs 23.9% 0.0% 0.0% 0.0%

Depreciation and amortization 30.1% 31.7% 32.9% 31.6%

Operating income 3.8% 32.2% 29.9% 24.8%

Loss on bond and debt extinguishment 16.2% 0.8% 0.0% 16.8%

Interest income 2.6% 1.2% 0.3% 0.2%

Interest expenses and finance cost, net 31.7% 35.4% 32.7% 28.8%

Loss on sale of vessel 0.0% 0.0% 0.0% 10.4%

Other income 1.2% 0.1% 0.2% 2.4%

Other expense 0.0% 0.5% 0.1% 0.2%

Net loss -40.4% -3.2% -2.5% -28.9%


Income Statement Growth

Year Ended Dec. 31st 2011 2012 2013

Revenue 263.2% 23.9% 34.0%

Time charter and voyage expenses 885.6% -19.3% 139.4%

Direct vessel expenses 314.2% 18.1%

Gross profit 254.7% 23.6% 32.2%

Management fees (entirely through related party transactions) 265.9% 31.9% 51.8%

General and administrative expenses 4.9% -9.1% 82.1%

Transaction costs -100.0%

Depreciation and amortization 281.8% 28.5% 28.7%

Operating income 2965% 15.0% 11.4%

Loss on bond and debt extinguishment -82.8% -100.0%

Interest income 64.0% -68.5% -29.2%

Interest expenses and finance cost, net 305.3% 14.5% 18.1%

Loss on sale of vessel

Other income -61.6% 80.6% 1609.6%

Other expense -64.0% 141.1%

Net loss -71.5% -1.5% 1442.7%

navios maritime acquisition corporation (nma)

Economy & Finance

dht sagehen capital

tnk sagehen capital

capital product partners

crude tankers

crude tanker supply

shipping industry

product tankers

crude tanker values