ESEA - Euroseas (ESEA) - Positive Impact from Two Feeders Fixed At Attractive Rates
Two new feeder fixtures indicate firm container market. Two 2,556 TEU feeders, the Corfu and Evridiki G, were locked up on time charters for at least three years at very attractive TCE rates of $40.0k/day. The new feeder rates are very positive when considering the recent four-year time charter on the Oakland intermediate at a TCE rate of $42.0k/day.No change to our 2021 EBITDA estimate of $53.9 million based on TCE rates of $18.6k/day, but positive impact on 2022 EBITDA estimate. We are moving our 2022 EBITDA estimate to $109.4 million from $101.6 million based on TCE rates of $28.5k/day, up from $27.0k/day.2022 cover moves up to 89% from 80% at a TCE rate of $26.0k/day, up from $25.3k/day. Using the latest redelivery dates, only two feeders and one intermediate are available next year, and two feeders are available in 1H2023. The Astoria feeder should be available in late 1Q2022, the Aegean Express feeders should be available in early 2Q2022 and the Akinada Bridge intermediate should be available in early 4Q2022. The Joanna feeder should be available in early 1Q2023 and the Hydra feeder should be available in 2Q2023.Debt financing on acquisitions increases financial leverage, but high forward cover matches debt load. Financial leverage is moving up due to two debt financed acquisitions in 4Q2021. Total debt increases to $110.4 million and net debt to $85.3 million, but the higher debt load is manageable at LTM EBITDA multiples of 2.0x total debt and 1.6x net debt. Moreover, 4Q2022 net debt should drop to ~$8 million or 0.1x 2022E EBITDA even though new build capex will be ~$19 million next year.Maintain Outperform rating and price target of $45.00/share. The sharp 30% drop this quarter after the slight miss on 3Q2021 operating results is surprising, and we believe that the risk/reward profile is very attractive. Our container market outlook stays positive and numerous longer term charters at favorable rates create high forward 2022 cash flow visibility. Recent acquisitions derisked with long time charters, improved forward visibility and the current valuation support a positive outlook. Favorable container market fundamentals, new time charters and two acquisitions are very positive, and shareholder-friendly moves, including dividends and/or buy backs, are probable next year. Read More >>