Are Navios Maritime’s Book Vessel Values Telling the Whole Story?
Shipping vessels usually are the most important asset for a shipping company. As NAV (net asset value) entails getting the market value for all the assets and liabilities of a company, getting the market values of vessels correct is crucial. The vessel values for a shipping company fluctuate based on the supply and demand fundamentals. For the purpose of valuation, vessel prices could either be assessed through the recent transaction prices of similar vessels, demolition prices, replacement value, or discounted cash flow value.
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Secondhand vessel prices
The above chart shows the relationship between vessel ages and secondhand vessel prices. As average vessel age increases, the fall in the value of vessels is relatively larger.
To calculate vessel values, we arrive at the average age of each of the vessel types and use the corresponding transaction price from ship brokers’ reports. For example, the average age of Navios Maritime Partners’ (NMM) Capesize fleet is ~5.5 years. The corresponding price for this type of a vessel in the secondhand market is ~$19 million. We calculate the value of other vessels and reach a combined fleet value of ~$644 million.
The vessel values of dry bulk companies (SEA) such as Diana Shipping (DSX), Navios Maritime Holdings (NM), Scorpio Bulkers (SALT), and Ship Finance International (SFL) have deteriorated significantly in the past year due to the pressure on freight rates amid deteriorating demand and supply fundamentals. The SPDR Metals and Mining ETF (XME) provides exposure to the metals and mining space. NM forms 1.9% of SEA’s holdings.
Investors need to take into consideration that if so many vessels were to come up for sale in the market at the same time, the price fetched per vessel might be even lower than the transaction prices for similar vessels in the recent past. In the next part of this series, we’ll look at other items needed to arrive at the NAV for NMM’s stock.