In this episode of Capital Link’s Trending News Webinar, Mr. Pankaj Khanna, CEO of Heidmar Maritime Holdings (NASDAQ:HMR), joins Nicolas Bornozis, President of Capital Link, to discuss Heidmar’s Q2 performance, growth strategy and market outlook.

Watch the full discussion:

Heidmar’s second-quarter results marked the point at which the growth strategy began to translate into meaningful financial performance. Revenue increased 58% sequentially and just over 200% year-over-year, confirming management’s view that the platform had reached a stage where it could begin to scale.

As Mr. Khanna told Capital Link during the company’s Q1 interview, the fuller impact of that growth was expected to emerge from the second quarter. That momentum followed two years of building the platform. During the first half, Heidmar added nearly 15 vessels, while the Q-Shipping transaction, which closed on July 1, brought the total increase to 24 vessels. Growth came across both the commercial and technical management platforms, alongside a tanker market that has remained at historically high levels.

From public listing to growth capital

The balance sheet is beginning to reflect the growth that Heidmar set out to achieve when it went public. Cash increased from $18.6 million at year-end to $28.7 million, while operating cash flow swung from a $3.2 million outflow to a $7.7 million inflow year-over-year. Total assets now stand at approximately $100 million.

The Q-Shipping Acquisition

The Q-Shipping deal was modest in cash terms, but it gave Heidmar something more valuable: an established footprint in two markets where it sees room to grow, the Netherlands and Turkey.

Paths to scale

Technical management is where Heidmar sees the greatest scope for acquisition-led growth. The sector is fragmented, with hundreds of companies that could be candidates. For example, Q-Shipping has taken the business from around 10 vessels to 20.

Commercial management will grow organically, ship by ship, for a structural reason. Most of the large commercial managers are tied to shipowners such as Maersk, Hafnia, Scorpio and Norden, making them an integral part of their operations. These owners are not looking to sell their commercial management businesses.

Scaling with operating leverage

Commercial and technical management are not separate from a cost or commercial perspective. They share offices, accounting and some operational resources, while each can generate business for the other. A technical management relationship can lead to chartering opportunities, while an owner coming to Heidmar for commercial management can become a technical management prospect.

Valuation beyond NAV

Mr. Khanna repeated the case he made a quarter earlier, that Heidmar should not be valued on NAV. The reasoning is that the company holds no vessels and, as things stand, no debt, which leaves no net asset value to calculate. His preferred measure is a multiple of net income. Adjusted net income for the first half was approximately $6 million. Annualized, and with the caveat that this is not a projection, that would imply roughly $12 million for the year. Against the $76 million market capitalization cited by Mr. Khanna, that represents a multiple of about six times. Peers, he noted, trade at 15 to 20 times. At 10 times, Heidmar would imply a $120 million market capitalization; at 15 times, $180 million.

Why Tanker Rates Keep Climbing

The Strait of Hormuz is closed in Mr. Khanna’s assessment. Reports of ten or twenty ships getting out amount to a trickle, and hostilities have resumed with large-scale attacks both on Iran and on shipping. Houthi attacks on vessels transiting Bab el-Mandeb compound it, particularly for ships connected to Saudi Arabia.

As a result, there is a rerouting that shows what has happened to ton-miles. Saudi crude moving to China from Yanbu would normally sail 6,700 miles. It now goes through the Suez Canal to Ain Sukhna, into the Mediterranean and around the Cape of Good Hope, a voyage of some 15,000 miles.

Seasonality then adds to it. Fourth quarter and first quarter demand run higher, buyers are fixing 3-4 weeks ahead, and October loadings come into the market shortly, seeing cargoes arriving through late October and November.

Disclosure: Capital Link works with Heidmar Maritime Holdings (HMR). This content is for informational purposes only and not intended to be investing advice. We would like to highlight that this is not an article with Capital Link’s editorial. It reflects only comments made by management during the company presentation

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.