ESEA - Euroseas (ESEA) - Another Positive Data Point
Time charter on Aegean Express feeder ahead of expectations. Consistent with comments from the recent earnings call, a 36-39 month time charter on the 1,439 TEU Aegean Express Feeder was secured at at an average TCE rate of $41.0k/day. The time charter should generate total revenue of $47.0 million and EBITDA of $36.0 million over the first 36 months, or EBITDA of close to $1.0 million per month beginning in early April.Forward 2022 cover of close to 100% at average TCE rates of $31.0k/day creates high visibility. Recent fixtures pushed 2022 forward cover to almost 100%, and there is only one remaining 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 our adjusted 2021 EBITDA of $56.8 million.Four new build Feeders under way and other new builds appear possible. A total of four Eco design 2,800 TEU Feeders will be built in South Korea at an estimated cost of ~$86.3 million, or ~13% above the two Feeders ordered in 2Q2021. Deliveries are slated for 4Q2023/1Q2024. The new build expansion to four is a sign of confidence in the Feeder market outlook. The first two Eco design 2,800 TEU Feeders are on track and it seems likely that time charters will be in place prior to 1Q2023 delivery.Capex still appears manageable due to high forward cover. We believe that the second two new builds have similar payment terms as the first two, with capex approximating $8.5 million in 1Q2022, $4.3 million in 4Q2022, $8.5 million in 1Q2023, $8.5 million in 2Q2023, $4.3 million in 3Q2023, $25.5 million in 4Q2023, and $25.5 million in 1Q2024. While YE2022 estimated cash dropped to $78.3 million from $92.1 million due to the new builds, stock buy backs and/or dividends remain likely in the absence of added new builds/acquisitions.Maintain Outperform rating and price target of $49.00/share. Even though the stock mostly rebounded from 4Q2021 weakness, 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 over this year and into next. While fleet growth remains the highest priority, dividends and/or stock buy backs are probable this year if acquisitions and/or new builds do not materialize. Read More >>