ESEA - Euroseas (ESEA) - Adding Three New Build Feeders to Fleet Renewal Program
Three new build Feeders added to fleet renewal program. Three Eco design 1,800 TEU Feeders will be built at Hyundai Mipo in South Korea for ~$102 million, or ~$34 million each, with deliveries are slated for 1H2024. The new build program expands to ~$264 million for seven Feeders. We view this move as another sign of confidence in the Feeder market outlook due to the below average order book compared to the order book for intermediate and larger containerships.First four Feeder new builds on track and time charter interest developing. The first four Eco design 2,800 TEU Feeders ordered over the past three quarters are on track. Total estimated cost of first four Feeders is ~$161 million, with deliveries slated for 1Q2023/2Q2023/4Q2023/1Q2024. On the last earnings call, management indicated that there was budding interest in the first set of new builds and time charters seem likely to be in place prior to delivery.High forward cover at average TCE rates of $31.0k/day creates solid 2022 visibility. Recent fixtures pushed 2022 forward cover to ~100%, with only one other opportunity this year to move TCE rates closer to market rates. Forward cover represents a solid base for our 2022 EBITDA estimate of $123.6 million, or well above adjusted 2021 EBITDA of $56.8 million.Capex still appears manageable due to high forward cover. We believe that the three smaller new builds have similar payment terms as the first four. Added capex approximates $15.3 million in 2022, $40.8 million in 2023 and $45.9 million in 2024. While YE2022 cash estimate drops to $65 million from $79 million due to the new builds, stock buy backs and/or dividends remain possible over the next year in the absence of added new builds/acquisitions.Maintain Outperform rating and price target of $49.00/share. Even though the stock has almost fully rebounded from the sharp 4Q2021 drop and upcoming time charter news will be limited, we believe that the risk/reward profile remains very attractive. Our container market outlook remains positive and numerous longer time charters at favorable rates create high forward cash flow visibility over this year and into next. In addition, shareholder-friendly moves, including stock buy backs and/or dividends, might happen over the next year even though 2022 capex moves higher by ~$15 million with three added new builds. Read More >>