ESEA - Euroseas (ESEA) - Another Fixture at a High Rate - Increasing Price Target
Time charter on Astoria feeder ahead of expectations. Consistent with comments from last week's webinar (see our January 14th note), a 36-38 month time charter on the 2788 TEU Astoria feeder was secured at an average TCE rate of ~$45.0k/day. The time charter rates of $65.0k/day for the first 12 months, $50.0k/day for the next 12 months and $20.0k/day for the last 12-14 months were above expectations. The time charter should generate TCE revenue of $47 million and EBITDA of $36 million over the first 36 months.No change to our 2021 EBITDA estimate of $55.5 million based on TCE rates of $18.7k/day. Higher fixture assumptions have positive impact on 2022 EBITDA estimate. We are moving our 2022 EBITDA estimate to $121.8 million from $114.8 million based on TCE rates of $30.7k/day, up from $29.4k/day.Forward 2022 cover of 97% at average TCE rates of $30.0k/day creates high visibility. The new fixture pushed 2022 forward cover to a very high level of 97% from 91%, and there are only two remaining opportunities to move the fleet to TCE rates that are closer to market rates. At an average TCE rate of $30.3k/day, the forward cover represent a solid base of EBITDA of $118.5 million.Acquisition financing increases financial leverage, but high forward cover matches debt load. YE2021 cash of ~$31 million was higher than expected and YE2022 cash should build to $92.1 million so stock buy backs and/or dividends are likely in the absence of added acquisitions.Maintain Outperform rating and increase price target to $49/share from $45.00/share. Even though the stock has partially 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 stays positive and numerous longer time charters at favorable rates create high forward cash flow visibility into this year and next. Recent acquisitions were derisked with long time charters, forward visibility is high and the current valuation supports our positive outlook. Favorable container market fundamentals, new time charters and two acquisitions are very positive, and shareholder-friendly moves, including stock buy backs and/or dividends, are highly probable this year. Read More >>