Navigator Gas Q2 Earnings
Highly Profitable Quarter in the Face of Macro Uncertainty
Earnings Summary
Revenue: $130,000,000
Net Income: $21,500,000
Average Time Charter Equivalent: $28,216 p/d
Fleet Utilization: 84.2%
Commentary
Overall I was pleased with the results for the second quarter from Navigator. There were a number of uncertainties on the back of trade disruptions broadly to include talks of US-China related export licensure that was rescinded in early July. Had such measures remained over the long term the EIA estimates it would have caused an 80K b/d decline in US Ethane exports and an additional 175K b/d in 2026.
China accounts for nearly 50% of all US Ethane exportation via long term offtake with Ethane cracking facilities in the country that are coming directly out of Morgans Point where Navigator maintains a 50% working interest.
In June of this year, just a few months ago 25% of the Very Large Ethane Carriers (VLECs) were stalled in the US Gulf Coast. As a response there was a movement away from China, diverting some capacity to Ethane crackers in India. The EIA estimated a significant decline in exportation and needless to say there was a real threat coming from what ended up being a mere bargaining chip in a broader trade war globally.
Balance Sheet
We were pleased to see the business sure up its capital structure via a $300M financing facility that added $140M of liquidity after accounting for the take out of two more expensive facilities. In addition, $40M of unsecured bonds were issued with a price at par of 7.25%.
This $40M tap was done at the lowest spread rate (15bps) for any US denominated shipping bond according to the business. Cash on the balance sheet stood at $314M after accounting for $64M paid toward new vessel construction. While there was no significant maturities added in the near term, the balance sheet has no real maturities until 2029 with the rest of the outstanding loans due for repayment in 2030-2031. Here is a screen grab of the most recent maturity stack vs the previous quarter.
New Build Vessels
Navigators current new build book includes 6 medium sized gas carriers via a 60% JV with Greater Bay and an additional two Ammonia fueled and Ammonia capable vessels via an 80% JV with Amon.
For the most recent new builds the gross cost per vessel is $84M less $9M in Enova grants from the Norwegian government bringing the net purchase price to $75M. Navigator assumes $59M of debt financing (70/30 LTV) leaving just $16M of equity needed to be raised.
For both vessels and an 80/20 JV split Navigator would be responsible for $25.6M of the $32M equity contribution needed. Finally, while I am not sold on the Ammonia fueled vessels financial viability, given that these are chartered at 5 year fixed rates with a blue chip Ammonia producer I am much more comfortable with the transaction.
Capital Allocation
Navigator finished its second $50M repurchase program and since 2022 they have retired $166M in total value at an average price of $14.15 vs an internal NAV estimate of $28 p/s. While the business also pays out a dividend, I would personally like to see more stock buybacks at these prices but given the strong financial position of the firm they are able to do a lot of buybacks and a little bit of everything else.
Fleet Renewal
From a fleet renewal point of view we got the sale of Navigator Venus for a book value gain of $12.6M. There are two remaining vessels listed as help for sale, Navigator Pluto and Navigator Saturn that are the same age and same cubic meters. Therefore, we think that these vessels will be off the books by the end of 2025 resulting in roughly $10M a piece in book value contributions.
