ESEA - Euroseas (ESEA) - Solid Visibility Drives Price Target Increase
Container market remains firm and upcoming fixtures should be favorable. While the short charter secured on the Oakland intermediate at a rate of at least $195k/day appears extraordinary, the container market remains firm despite a rising order book and Contex rates have moved higher. The recent charters on the Oakland, Jonathan P and Diamantis P are good examples of a strong container market.No change in 2021 EBITDA estimate of $55.1 million based on TCE rates of $18.9k/day. The Oakland intermediate should roll to the new TCE rate in late October and our 4Q2021 EBITDA estimate of $25.3 million is based on a TCE rate of $28.5k/day. Forward cover is very higher and only 9% of 4Q2021 available days are open.Fine tuning 2022 EBITDA estimate of $90.7 million based on TCE rates of $26.5k/day. While our assumed TCE rate of $75.0k/day on the Oakland looks low, congestion has played a significant role in pushing up TCE rates and it is difficult to gauge how long it will last. There could be upside to the Oakland TCE rate and a $5.0k/day change has a $1.8 million impact on EBITDA. Also, four feeders (Corfu/Evridiki G/Astoria/Aegean Express) are available for charter in 1H2022 and renewals could have a positive impact on our 2022 numbers.Financial flexibility improving and shareholder-friendly moves expected. Higher cash flow driven by longer charters should positively impact the capital structure. Also, strong stock price performance triggered conversion of preferred stock in 2Q2021. An acquisition was completed and growth remains a priority, but we believe that other moves, like paying a regular and/or special dividend if added acquisitions don't materialize.Maintain Outperform rating and increasing price target to $45.00/share from $35.00/share. Our container market outlook stays favorable and the numerous longer term charters at higher rates create forward 2022 cash flow visibility. Even though the stock was up 325% in 1H2021 and is up another 54% in 3Q2021, improved visibility and the current valuation support a positive outlook. Strong container market fundamentals, new time charters and an acquisition are positive and shareholder-friendly moves are likely later this year. Read More >>