A Greek Gem Below Investors' Radar

Mar 1 2014, 11:33am CST | by

Disclosure: I own CMRE stock

The Greek economy may be lagging behind the world economy in many sectors, but it continues to lead the shipping industry. That’s where, in our opinion, the investment opportunities are.

But even investors already chasing after the shares of high visible Greek shipping company DryShips may be missing a gem: Costamare Inc (NYSE:CMRE) — one of the world’s leading owners and providers of containerships for charter.

The Company has 40 years of history in the international shipping industry and a fleet of 67 containerships, with a total capacity in excess of 438,000 TEU, including 11 newbuild containerships on order.  Twelve of their containerships, including nine newbuilds, have been acquired pursuant to the Framework Agreement with York Capital Management by vessel-owning joint venture entities in which they hold a minority equity interest.

In addition, the company owns a luxury hotel resort in Southern Greece, and stands to benefit from a revival of the Greek tourist industry.

What makes Costamare an investment gem are two things: First, its financials that make it stand out among its peers — large operating margins, a healthy revenue and profit growth, and a hefty dividend of 5.5 percent.

Company DryShips Tsakos Navigation Costamare Navios Maritime Partners
Forward P/E 14.30 40.60 9.92 24.50
Quarterly Revenue Growth (yoy) 17.80% 16.40% 16.10% -16.10%
Quarterly Earnings Growth (yoy) N/A 67.30% -40.70
Operating Margin (%) 8.47 7.99 40.88 5.69
Return on Assets 0.77 0.63 4.29 0.52
Debt/Equity 139 139.12 302.22 47.28
Operating Cash Flow 76.97M 125.64M 173.57M 155.53M

Source: Yahoo YHOO  +0.71%.Finance.com

Second, their reliance on long-term leases rather than on spot rates—the company signs long-term shipping leases as soon as new vessels are ordered.

Recently, for instance, the company ordered nine newbuilds with capacities between 9,000 and 14,000 TEU pursuant to their joint venture agreement with York Capital Management (“York). The newbuilds are scheduled to be delivered between the 4th quarter of 2015 and the third quarter of 2016.

The Company holds an equity interest ranging between 25% and 49% in each of the relevant vessel-owning entities. Long term time charters have been agreed for the five 14,000 TEU capacity newbuilds with members of the Evergreen Group (“Evergreen”) which represent total contracted revenue for the joint venture of $850 million, assuming exercise of the owner’s options.

Long-term shipping leases create a steady flow of revenues and earnings, as reflected in Costamare’s most recent January 27, 2014 report, which covers the fourth quarter and the year ended December 31, 2013:

·         Voyage revenues of $112.5 million and $414.2 million for the three months and the year ended December 31, 2013, respectively—compared to $95.193 million and $386.155 million in 2012, respectively;

·         Voyage revenues adjusted on a cash basis of $116.8 million and $429.2 million for the three months and the year ended December 31, 2013, respectively–compared to $97.545 million and $392.416 million in 2012;

·         Adjusted EBITDA of $75.7 million and $282.4 million—compared to $62.510 million in 2012, respectively.

A few words of caution: Shipping is a highly cyclical industry. This means that Costamare is sensitive to a decline in the world economy, and most notably the world’s manufacturing base China. Long-term leases may create a steady flow of revenues, but they don’t seal the company from counter-party risk. Investors should also be concerned about a dark spot in the company’s financials — a high debt-to-equity ratio, which could become a serious problem should revenue growth slow down.

Source: Forbes Business

 
 
 

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