ESEA - Euroseas (ESEA) - Solid 4Q2021 Results and Forward Cover Remains High
Reported EBITDA of $26.1 million slightly above expectations. Adding back dry dock expenses, we calculate adjusted 4Q2021 EBITDA of $27.3 million on TCE rates of $30.0k/day. Full year adjusted EBITDA was $56.8 million on TCE rates of $19.3k/day.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 $30.6K/day, forward cover represents a solid base and our 2022 EBITDA estimate is $121.6 million, or well above our adjusted 2021 EBITDA of $56.8 million.Two new build Feeders added to existing new build program and time charter interest on first two Feeder new builds developing. Two Eco design 2,800 TEU Feeders will be built at Hyundai Mipo 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. We view the expansion of the new builds to four as a sign of confidence in the Feeder market outlook. The first two Eco design 2,800 TEU Feeders ordered in 2Q2021 are on track and management indicated that time charters are likely to 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. 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 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 negative 12% initial response to 2021 operating results, we believe that the weakness is unwarranted and 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, shareholder-friendly moves, including stock buy backs and/or dividends, are probable later this year if acquisitions and/or new builds do not materialize. Read More >>