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By John Helmer in Moscow

The only internationally listed Russian port company is turning out to be one of the stable revenue survivors in the shipping, trading, container, and currency storms now blowing havoc across the Black Sea. But don’t pay attention to the stock markets, the company management and Russian maritime analysts warn.

Shares of Novorossiysk Commercial Sea Port (listed as NCSP:LI in the London market, NMTP:RU in the Russian market) retreated 10% in trading on March 2; they have lost 40% since January 1. At a current share price of 60 US cents, market capitalization of the company is currently $1.2 billion. At peak in June 2008, the share price was 22 cents, and the market cap, $4.3 billion. The controlling shareholder is board chairman Alexander Ponomarenko; the Russian government holds a 20% stake; and since a London initial public offering in 2007, the free share float is between 20% and 30%.

However, share turnover has been minimal, according to a source close to the company, adding that when a Moscow investment bank stopped speculating in the shares last year, the volume of shares offered for sale has been too small to be significant. Large swings up and down in the share price are therefore dismissed by senior management of the company as lacking meaning. Whether the instability is without impact on the management, the institutional shareholders, and bank lenders to the port is another issue.

A London broker told Fairplay there was significant dumping of shares in the last quarter of 2008, and in January of this year, as hedge funds sold out of all their emerging market positions. More recently, he said the position for Novorossiysk port has stabilized, as the management message begins to get through. The management claims the main institutions, which bought into the company at the IPO, haven’t budget. It also claims that’s the message it is getting regularly from Morgan Stanley and other marketmakers.

This message is that Novorossiysk, the second largest oil port in Europe (after Rotterdam), is a hedge against rouble devaluation, because its revenues are in dollars. It is also relatively secure from the volatility in container and other cargo flows, because its cargo base is universal and diversified; that is, when one type of cargo dwindles, another may be picking up. This is just as well — the container flow dropped by almost 10% in January, compared to the year earlier.

Container movements are highly sensitive to the dwindling purchasing power of the Russian currency, which has fallen 47% since September 1. On the other hand, the devaluation has had a positive impact on oil and petroleum export volumes.

A company report on cargo operations in January indicates total cargo throughput was 7 million tonnes, up 17% on January of 2008. Biggest cargo gainers in January were crude oil (4 million tonnes, up 21%), and petroleum products (1.1 million tonnes, up 55%). A company report indicates that oil cargoes represent 74% of current throughput. As other cargoes and containers have shrunk since the global trade crisis began, oil has become an even larger proportion of the port company’s volume business, even though management insists it is less significant in the port’s revenue and profit figures.

According to the January tonnage report, iron-ore and concentrate, grain, and pig-iron are the current gainers among the dry cargoes, while ferrous metals, mineral fertilizers, containers, and sugar are the losers.

Chief executive officer Igor Vilinov says of the January performance of the port: “we retained positive year-on-year cargo traffic dynamics thanks to sustainable growth achieved from the new cargo terminals launched in 2007-2008. On the other hand, our monthly cargo traffic compared to December 2008 has decreased.”

Sources close to the company tell Fairplay that Novorossiysk should not be considered an oil port at all, because in revenue terms, the tariff structure of the oil trade is less lucrative than many other cargoes. This means that, in the 9-month accounts to September 30 last — the latest official results issued — the share of crude oil transhipment revenues turned out to be less than 25% of total transhipment revenues. As crude oil shipments are being swung by exporters towards Russia’s northern, predominantly Baltic Sea ports, Novorossiysk has been able to attract growing volumes of petroleum products by increasing terminal capacity, and working more closely with cargo owners. A company source told Fairplay that in February, oil cargoes accounted for 30% of the company’s transhipment volume.

Speaking of the port company’s dollar fortification, Renaissance Capital analyst Paul Roger said in a client note in mid-February: “We view the port as a defensive asset with a robust balance sheet.” He is forecasting that “export volumes [will] benefit from a weaker rouble, and higher tariffs to more than offset any weakness elsewhere. The government will support better pricing, in our view.” Roger estimates that revenues for 2008 will come in at $704 million, and grow by 13% this year to $796 million. Net income will grow almost as fast (12%) from $222 million estimated for 2008 to $248 million for 2009.

With costs denominated in roubles, and revenues in dollars, the port company is also relatively safer from the currency squeeze facing other Russian transport companies, which are burdened with higher levels of debt. At present, Novorossiysk’s short-term debt is only $32 million, according to Renaissance Capital, while the company had $84 milliopn in cash on hand at the end of last December. Long-term debt consists of $300 million in 5-year Eurobonds, and a 3-year loan from Italy’s Unicredit group for $118 million.

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