The Panama Maritime Authority has granted a 20-year concession to Greek marine fuel logistics company Aegean (NYSE: ANW) to operate onshore storage activities in two ports located along the Panama Canal on an exclusive basis.
Is this a big deal? Yes. Let's analyze to gauge the impact of this contract on the company's financials, which could be very significant.
Global exposure
Aegean will be operating its storage facilities in the Panamanian ports of Balboa and Cristobal, located at each end of the canal connecting the Atlantic Ocean with the Pacific Ocean. These ports facilitate approximately 14,000 transits per year. And by definition, each of these ports means huge opportunity for the Greek company as the global shipping industry shows signs of rebound.
The onshore storage facility on both of these ports is about 3 million barrels with further space for expansion. Aegean has planned to start providing retail bunkering services in the Panamanian ports toward the end of the second quarter of this year. Shareholders should find it encouraging since the added exposure Aegean will be getting in the future should provide opportunity for the company to boost profitability.
It's a matter of concern as Aegean has been facing systematically declining free cash flow. Margins have also fallen compared to the previous years. It's worth mentioning here that EBITDA margin is at its lowest in the last five years. Investors may expect an improvement in revenues and stronger cash flows from Aegean's business expansion in Panama.
Time to rejuvenate
The international marine networking in the 50-mile long Panama Canal could be giving Aegean the impetus to enhance its efficiency. This is what really matters to investors. Aegean's carrying and storing capacity would scale up since the canal supports a large portion of the traffic for the U.S.
This concession could also help Aegean to get an advantage over other Greek marine logistic company such as Tsakos Energy Navigation (NYSE: TNP), which has struggled to improve its global presence.
The Foolish outlook
Aegean might not be looking that attractive to investors yet thanks to pretty poor trailing comps. However, the latest deal in all probability should help Aegean strengthen its fundamentals and boost its growth in the coming years.
The delivery orders of bunkers to Singapore and recent award received from Panama suggest that Aegean is getting more opportunities to foster growth. It seems that this stock could hold long-term returns for the shareholders. What do you think?
