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Aegean Marine Picking Up Speed

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Look for Aegean to make a few acquisitions in the coming year, especially as it looks to build out its popular service center in Singapore.

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Back on June 14, I told you all about one of my favorite side plays on the dry-bulk ocean shipping boom, Aegean Marine Petroleum (ANW). The bunker fuel provider is up about 65% since, with a big burst coming over just the last two weeks. It's always interesting to me how these ideas get hot all of a sudden. In this case, the jump shows how powerful certain analysts have become again on Wall Street, particularly with smaller companies in niche industries.

The first new leg of gains came early this month when a Stephens analyst initiated the stock and put a $30-plus target on it. Then last week, Jefferies analysts initiated and put a $42 target on stock, which was then in the low $20s.

I am still bullish on the stock on pullbacks, so let me fill you in on what's been happening lately. Aegean announced plans a couple of weeks ago to open a new service center on the West African coast -- specifically, in the Gulf of Guinea. Three bunkering vessels and a floating storage vessel will support the company's operations there, which are due to come online later this year. Once the facilities are up and running, Aegean will be the only major bunkering company operating in the area. Given the lack of competition and surging demand as crude oil tanker traffic out of Nigeria increases, I am confident that Aegean's newest service center will be very profitable. It certainly fits with the Athens-based company's strategic outlook. For the most part, its strategy shuns the busier ports of Houston and Rotterdam and is instead focusing its expansion efforts on underserved markets like Jamaica and Africa.

Moreover, a recent increase in bunker fuel prices, from $285 per ton in January to $460 now, has put the squeeze on smaller players. Given Aegean's strong financial position, with some $100 mln in working capital and an open $50 mln credit line at the Royal Bank of Scotland, it looks ready to take advantage of acquisition opportunities. In fact, many of these smaller companies have contacted Aegean to convey an interest in selling out or partnering up. For any proud business owner, that is a tough call to make.

But many have no choice. The market is fragmented, which kills pricing power. It is difficult to expand fleet capacity, since the shipyard order books are filled for the next few years at least. In fact, delays are inevitable as the global shipbuilding tempo has resulted in equipment delivery delays. And with the coming regulatory changes that will phase out single-hulled bunkering ships, many see the writing on the wall and just want to cash out.

This plays right into Aegean's expansion plans. Look for the company to make a few acquisitions in the coming year, especially as it looks to build out its popular service center in Singapore. A few more storage tankers would help meet growing demand in that location. For the third quarter, management expects delivered fuel volume to rise 15% over last year, to over 1 mln tons of fuel.

I am looking for earnings per share to grow to $1.45 next year, up from 87 cents last year. Throw a reasonable 25X multiple on that, considering Aegean will growing EPS at a 30% annual rate over the next few years, unless there's a total global economic meltdown, and you get my target north of $40. I would try to buy only on dips that test the recent breakout in the $26 area.
No positions in stocks mentioned.

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