Specialist liquid-gas ocean carrier Navigator Gas evidently had a faulty compass in the first quarter of 2019 as it reported a $3.3m loss. The company attributed its results to geopolitical issues along with a variety of one-off incidents around the world. Together they tended to cause an oversupply of ships and a softening of rates in its niche-sector.
Navigator (NYSE:NVGS) only barely found its way to profit in the first quarter of last year too. Back then, it only recorded a net income of about $700,000.
First quarter revenues and time charters
First quarter 2019 revenues were $76.1 million, down 2.2 percent on the $77.8 million recorded in the first quarter of 2018. The company generated $40.6 million of its operating revenues from time charters. Time charter revenues in the first quarter of 2019 were down 3.67 percent from 2018’s first quarter figure of $42.17 million. Looking forward, eight time charters expire within a year and another three expire within three years. Longer-term, the company has five time charters that expire within nine years.
Navigator generated the rest of its revenues, $35.48 million, from voyage charters and contracts of affreightment. Voyage charter revenues were essentially flat.
Earnings before interest, depreciation and amortization stood at $27.1 million to the three months ended March 31, down by 11.15 percent from the 2018 first quarter figure of $30.5 million.
Costs analysis
Expenses increased marginally by 1.82 percent in the first quarter of 2019 compared to the first quarter of 2018. They were up by $1.23 million to stand at $67.89 million. Navigator took a hit on its first quarter vessel operating expenses too. Vessel operating expenses were up by $2.77 million, a 10.35 percent increase compared to the prior corresponding period, to stand at $29.47 million.
Average daily vessel operating expenses increased by $809 per day to $8,618 per vessel per day. Navigator attributed that increase to rises in the cost of repairs and maintenance. However, those increases were partly offset by a quarter-on-quarter $1.6 million fall in voyage expenses from $15.0 million to $13.4 million.
The company’s operating income declined by 26.3 percent on a quarter-by-quarter basis from $11.15 million to $8.21 million. There was a quarter-on-quarter 15.5 increase of interest expense from $10.52 million to $12.15 million. The increase in financial expenses was driven by approximately $71.7 million of bonds issued in November 2018 to partly finance its $155.0 million share of the construction costs of the Morgan’s Point joint venture marine ethylene export terminal in Texas.
Balance sheet
Navigator had $111.5 million of current assets at the end of the first quarter, which is down 5.58 percent on a quarter-on-quarter basis. Most of its current assets, 48 percent, are held as cash and cash equivalents. Another 21.18 percent are accounts receivable. Navigator’s non-current assets, mostly ships in operation, are valued at $1.74 billion.
The company’s current liabilities declined marginally from $105.40 million to $104.21 million. Just under 65 percent of the company’s current liabilities are the current portion of secured term loan facilities. Non-current liabilities rose by $20.51 million to $792.75 million, an increase of 2.66 percent. Total liabilities stood at $897.0 million. The company has a debt-ratio of 0.49, which indicates that just under half the company’s assets are financed through debt.
It’s generally considered that the higher a debt ratio then the higher the risk associated with a company. However, that general perception is influenced by industry norms, which will differ from sector to sector. Navigator’s current ratio (current assets / current liabilities), an indicator of solvency, is 1.07. When the current ratio is less than one it might possibly indicate that a company may have problems paying bills. But, again, that will be very dependent on the industry and on the nature of the business model in question.
Significant events in the first quarter
Navigator reported several significant events during the first quarter. Firstly, it re-financed four of its ethylene-carrying vessels for $107.0 million. The company also raised $75.0 million of debt for its contribution to the cost of building the Morgan’s Point ethylene export terminal.
It also entered into a “multi-year’ contract of affreightment to the end of 2025 for four of its ethylene vessels. It also signed a long-term throughput agreement for its marine export terminal.
In its discussion of its results, Navigator noted that the first quarter started strong but “failed to gather further momentum” for a variety of reasons.
Americas geopolitics, facility disruptions in Italy
Firstly, the U.S. government imposed sanctions on Venezuela’s state-owned oil company PDVSA. Navigator had two of its ships on time charter to PDVSA. Following the sanctions, there were several ships that left Venezuela for the international market. That exodus caused a softening of shipping rates, according to Navigator.
The company’s revenues were also adversely affected by a fall in rates in the larger, fully-refrigerated, gas carrier market. Rates for such vessels fell below $200,000 per calendar month owing to an oversupply of tonnage. But that situation reversed by the end of the first quarter. There was a later firming of rates to $1.0 million per calendar month.
Ethylene carriage rates slumped after a fire at a facility in Italy. That event led to Italian traders moving their vessels to the international market. “These traders thus absorbed all spot tons to keep their vessels moving from January well into March, which would normally have been shipped by the wider spot fleet. This impacted both ethylene utilization and earnings,” Navigator said. However, the Italian facility is back in business and the market is back in balance.
Navigator also reported increased exports of propylene and ethylene from Saudi Arabia and Abu Dhabi, an emirate of the United Arab Emirates.
Equities analysts positive despite losses
One set of equities analysts reacted positively to the company’s first quarter financial news. Although noting that reported results were below expectations, a research note commented: “market conditions have improved in 2Q, and we expect management should be more optimistic on the outlook for the industry through the remainder of the year. Importantly, the company announced new contracts of affreightment for… their ethylene ships through 2025 and also announced the signing of an additional throughput agreement at their Texas Ethylene Export terminal. No details were given on either the vessel contracts or the throughput agreement, and we expect the terms of these agreements are sensitive but extremely important for the value of NVGS shares.”
The analysts added that Navigator’s investment in an ethylene export facility will ensure that the company’s ethylene carriers are employed “specifically at rates almost double current market levels along with providing the opportunity to order newbuild vessels on the back of long-term contracts”.
Analysing Navigator’s fleet
UK headquartered Navigator provides international and regional ocean transport of liquefied petrochemical gases, liquefied petroleum gas and ammonia. Its customers are energy companies, industrial consumers and traders. The company runs a fleet of 38 ships with a total capacity of 896,425 cubic meters. The smallest ship in the fleet has a capacity of 20,600 cubic meters and the largest is 38,000 cubic meters. On average, each ship in the fleet has a capacity of 23,590 cubic meters.
Navigator operates 14 ethylene/ethane capable and semi-refrigerated vessels with a total capacity of 364,625 cubic meters. Those ethylene/ethane capable ships have an average capacity of 21,106 cubic meters. Navigator also operates 17 semi-refrigerated ships. They have a total capacity of 358,800 cubic meters and an average capacity of 21,106 cubic meters. Finally, it operates seven fully refrigerated vessels, which have a total capacity of 173,000 cubic meters and an average capacity of 24,714 cubic metres.
Importance of fleet age
It’s a fairly young fleet with an average age of just over eight years. There are 16 vessels that are under five years of age, 14 that are between eight and ten years old, two that eleven years old and five elderly vessels aged between 19 and 21 years.
The fleet age, and the age cohorts within the fleet, are important for two main reasons. Firstly, as a vessel gets older it becomes more expensive to operate owing to increased repair and maintenance requirements.
Secondly, companies have to take vessels out of the water every five years until the ships reach 15 years of age. After that waypoint, vessels have to be drydocked every three years or so. Drydocking costs a lot of cash. Navigator estimates $800,000 per vessel at five years old but $1.5 million at 15 years old. And the ship is out of service, and therefore cannot earn, for at least 15 to 20 days of drydocking time. Travel time to/from dry dock is five to ten days, Navigator says.