ESEA - Euroseas (ESEA) - Expanding New Build Program But Still Expect Dividend and or Buy Backs
Two new build feeders added to existing new build program. Two Eco design 2,800 TEU Feeders will be built at Hyundai Mipo in South Korea at an estimated cost of ~$85 million, or ~12% above the Feeders ordered in 2Q2021. Deliveries are slated for 4Q2023/1Q2024. The new build program expands to four Feeders, and we view this move as a sign of confidence in the Feeder market outlook in part due to an order book that is below the order book for intermediate and larger containerships.First two Feeder new builds on track and time charter interest developing. The first two Eco design 2,800 TEU Feeders ordered in 2Q2021 are on track, with deliveries are slated for 1Q2023/2Q2023. Total estimated cost is ~$76 million. On the last call, management indicated that interest was picking up and time charters are likely to be in place prior to delivery.Forward 2022 cover of 97% at average TCE rates of $30.0k/day creates high visibility. Recent fixtures pushed 2022 forward cover to 97%, and there are only two remaining opportunities to move TCE rates closer to market rates. At an average TCE rate of $30.3k/day, the forward cover represent a solid EBITDA base of $118.5 million.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. Added capex approximates $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 cash estimate drops to $79.3 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 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 stays 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, are highly probable this year even though 2022 capex moves higher by $13 million with two added new builds. Read More >>