Fearnley Securities believes the newly merged Navios Maritime Partners and Navios Maritime Acquisition can look forward to huge earnings in rising markets.
The Norwegian investment bank has re-started coverage of the surviving entity, US-listed Navios Partners, following the closure of the transaction on 15 October.
The combination was announced in August to bring together the company's bulker fleet with Navios Acquisition's tankers.
The fleet of 143 ships has a value of $4.2bn and a market capitalisation of $826m based on a share price of $29.68.
Fearnleys has a "buy" rating on the stock, with a target price of $45, a 60% upside.
Analysts Peder Nicolai Jarlsby, Erik Gabriel Hovi and Ulrik Mannhart said the company offers a "compelling risk-reward from depressed pricing" on both its ships and earnings, with massive cash flows and structural triggers ahead.
Containership deal in 2020
Navios Partners also took over sister operation Navios Containers, with 33 boxships, for $299m in December 2020.
"Navios Partners looks stronger than ever on the back of two pivotal mergers and shipping firing on nearly all cylinders," the analysts said.
"Through accretive acquisitions...Navios Partners has created a unique combination of scale and diversification as the largest US-listed shipping company," they added.
Fearnleys is forecasting "massive" Ebitda of $852m in 2022 and $667m in 2023, supported by a $1.7bn charter backlog.
Containership values have surged, with Navios Containers' stand-alone net asset value (NAV) up 165% to $908m.
This is a 189% return on Navios Partners' investment in the sister company.
The Navios Acquisition deal added 45 tankers in what Fearnleys considers an attractive entry point into the sector.
The analysts said the tanker arm traded at distressed levels due to an impending refinancing risk and a soft tanker market.
Better times ahead for tankers
"We expect a strong rebound for tankers over the coming months," the investment bank said.
Navios Acquisition's NAV is calculated at $408m, versus a purchase price of $208m.
The combined group NAV is $81 per share.
Parent Navios Maritime Holdings had $305m in outstanding 2022 bonds earlier this year, before a series of redemptions.
There is also $477m in 7.375% first priority mortgage notes coming due in January.
Risks outweighed
"We argue that Navios Partners' healthy balance sheet, massive earnings potential, strong backlog, improved group structure, accretive acquisitions, supportive manager, scale and diversification more than offset the dilution risk imposed by its parent's heavy, but solvable, debt burden," the analysts said.
When the Navios Acquisition deal closed earlier this month, Navios Partners' chief executive Angeliki Frangou called it a "transformative transaction."
She added that the 15m dwt fleet is split roughly into thirds between tankers, bulkers and boxships. The vessels consist of 15 different size classes and serve more than 10 separate end markets.
Frangou added: "We believe that this combination should result in a stronger, more resilient entity, mitigating sector-specific cyclicality, and enabling us to capitalise on opportunities throughout the industry and provide even returns to our stakeholders across cycles."
