Trust the Navigator

Navigator Holdings (NYSE: NVGS) is the owner and operator of the world’s largest fleet of handysize liquefied gas carriers. Although there is no official definition in terms of exact tonnage, handysize most usually refers to a dry bulk vessel with deadweight of up to 50,000 tons.

The stock has been up and down so far this year, so you need to be prepared for possible volatility. But the company’s solid fundamentals, combined with a price-earnings ratio under 10, make it an attractive opportunity.

The firm provides international seaborne transportation and regional distribution services of liquefied petroleum gas (LPG), petrochemical gases and ammonia for energy companies, industrial users and commodity traders.

These gases are transported in liquefied form, under cooling temperatures and/or pressure, which can reduce volume by up to 900 times depending on the cargo, making their transportation more efficient and economical.

For the second quarter of 2015, Navigator reported revenue of $84.1 million for the three months ended June 30, 2015, up 10.6 % compared to the three months ended June 30, 2014.

Net income increased to a record $26.3 million for the three months ended June 30, 2015, up 33.8 % compared to the three months ended June 30, 2014.

Earnings per share strengthened to a record $0.48 for the three months ended June 30, 2015, compared to earnings per share of $0.36 for the three months ended June 30, 2014.

Despite strong underlying fundamentals – as the most recent earnings report confirms – the stock price tumbled during the second half of 2014, mostly due to an overreaction to falling energy prices. This represents a buying opportunity for the shrewd investor.

Over the last 15 years, the company has remained intent on developing the business diligently, always seeking to meet the needs of the stakeholders. Today its fleet is the largest, most modern and most versatile in the handysize segment, facilitating enhanced service offering to the customer through flexibility and substitutability across the complete spectrum of LPG, petrochemical and ammonia markets.

“We have built a reputation as a reliable and safe seaborne transporter of gas liquids and we will continue to increase our footprint in delivering value to the stakeholders within the industry,” the company says on its website.

One reason for management’s optimism is that the company has substantial new export terminal capacity due to start up this year.

The shipowner has defied the gloom setting in the U.S. oil industry amid collapsing prices as LPG exports have stayed at close to full capacity out of the Enterprise and Targa terminals in the Gulf Coast and for cargoes of all sizes.

The company also completed delivery of three new vessels, making its total fleet of 26 vessels on the water at June 30, 2015.

Following the delivery of Navigator Triton on January 9, 2015, it has 11 remaining semi-refrigerated gas carrier new buildings on order, for delivery between April 2015 and March 2017.

Operating revenue for the last quarter was $78.4 million, an increase of $11.1 million, or 16.5%, when compared to the $67.3 million of operating revenue year over year.

This increase was due to increases in the weighted average number of vessels; improvements in charter rates; an increase in vessel utilization; and an increase in the number of voyage charters undertaken relative to time charters.

Of the 26 vessels operated as of December 21, 2014, 20 were employed under time charters and six were employed in the spot market.

Fleet utilization was 97.3% for the twelve months to December 31, 2014 compared to 92.9% for the full year of 2013.
Due to its tumble late last year, the share price has plenty of room on the upside. It’s a buy up to 25.

Tom Scarlett is an investment analyst with Personal Finance.