Quick Look - The Navigator Company

A Portuguese integrated paper manufacturer

Today I'm starting a new series on this blog that I call “Quick Look”. The idea behind it is to provide a quick look at specific companies who may be interesting for one reason or another.

Unlike my deep dives, I will not be going too in depth into the analysis, nor will I calculate a valuation or make a Buy/Sell decision. 

The goal is to primarily bring some attention to lesser known companies that might be interesting to some investors, either due to their business models, potential catalysts, or some other unusual reason.. 

This week, for our first Quick Look we’re going to be looking at a Portuguese company, The Navigator Company.

What Is “The Navigator Company”

The Navigator company is Europe’s largest manufacturer of printing and writing paper, and the sixth largest producer in the world. 2 out of 3 reams of office paper produced and exported from Europe are manufactured by The Navigator Company, who ships to over 130 countries in 5 continents.

They are a fully integrated paper producer, from breeding and nursing the Eucalyptus, to forest management, and eventual harvesting and processing into paper. While printing and writing paper is their primary business, they are also involved in other paper based products, like tissue, paper paste and even biomass based electrical power.

Sustainability is at the heart of The Navigator Company, with forest protection, biodiversity and responsible forestry management as important goals and objectives of the company. They also issue regular sustainability reports in regards to their activities.

The Business

The Navigator Company is in a commodity business where margins are thin and the market is either stagnated or shrinking, largely as a result of digitalization which has greatly reduced the demand for printing paper.

This is in line with what we see in their revenue which has stagnated for years (and decreased in 2020) as well as their profit margins, which are around 8%~10%. This shows that there aren’t really good capital re-investment opportunities with attractive ROI, which means that their best option for the cash flows they generate is to pay them out as dividends.

So far they have been able to fund their dividend policy out of their income, and that will likely carry on in the near future, but in the long term it’s likely that the company will either refocus on the non-office paper areas of business.

Geographical Distribution

While The Navigator Company is a Portuguese company, it does business all over the world, and is heavily export focused.

Other than its Portuguese factories and forestry reserves, it also owns a Mozambican subsidiary with rights to roughly 350 thousand hectares of forest. This subsidiary too owns factories in Mozambique and is building up an integrated forestry business in the region.

Additionally its offices in the United States, Mexico, Turkey, Russia, the Arab Emirates, and other countries mean that the company does business on a truly global scale.

Capital Structure

Another interesting thing about The Navigator Company is its capital structure, which is dominated by Semapa.

Semapa is a conglomerate whose main source of revenue is actually dividends originating from The Navigator Company. Since they hold a controlling share, we can reliably expect The Navigator Company to continue paying dividends.

The remaining shares, are evenly split between Institutional investors, and retail investors. While the plurality of non-majority shareholders are Portuguese, American and European investors follow closely.

The Dividends

Although The Navigator Company is a consistent dividend payer, both the amount, number and value of dividends is most certainly not.

Since 2013 The Navigator Company has paid a dividend every year, disbursing around 1.75 billion euros to shareholders. Eliminating the outliers, we can say that the average dividend disbursement is worth around 200 million per year, or roughly 27 cents per share.

The number of payments has been inconsistent, going from 3 separate dividend payments in 2015 (one in May and two in December), to a single dividend payment in 2019 (in April).

In Summary

Overall I don’t believe there is a lot of upside to The Navigator Company, but that doesn’t mean it’s not an interesting company focused on environmental sustainability that has been able to generate consistent profits, and has distributed them to shareholders.

This is a boring, un-sexy company that a deep value investor may want to look into, and see if it is worth investing in… or if it is too over-priced for its limited prospects.

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I’m also writing some articles for the European Investor Network, if you’re looking for a great group of investors talking about investing, please stop by!

And as always, if you have any questions or comments, shoot them on Twitter @TiagoDias_VC or down below!