ESEA - Euroseas Ltd. (ESEA) - Feeder Acquisition Expands Fleet and Forward Cover
Acquisition of 2006-built 1,740 TEU feeder for $25.5 million expands the fleet to 15. Attractive time charter limits capital risk. We are assuming financing of 50% debt so forecasted yearend 2021 debt will increase by $12.8 million to $71.3 million. In order to limit capital risk, the Jonathan P will be time chartered out for three years at a net TCE rate of $26.7k/day. The time charter should generate total EBITDA of $22 million, or ~$20.0k/day, and drop the cost basis below the scrap value.Container market remains firm and upcoming fixtures should be favorable. The Jonathan P three year time charter is another good example of a strong container market. Same with the recent Diamantis P time charter through October 2024 at a TCE rate of $27.0k/day. Four feeders (Corfu/Evridiki G/Astoria/Aegean Express) and one intermediate (Oakland) are available for charter over the next six months, and recent charters on the Oakland intermediate and Spetses/Diamantis P/Jonathan P feeders set a positive tone.Maintain 2021 EBITDA estimate of $47.6 million based on TCE rates of $17.3k/day. The Jonathan P and Diamantis P time charters move the forward cover to 96% at TCE rates of $16.2k/day. Since the container market remains strong and charters have become longer, only 2% of 3Q2021 available days and 13% of 4Q2021 available days are open.Increasing 2022 EBITDA estimate to $76.8 million from $70.9 million based on TCE rates of $23.7k/day, up from $23.6k/day. The Jonathan P time charter adds to forward cover. Combined with the Diamantis P charter, the forward cover has expanded to 71% at TCE rates of $21.4k/day over the past month from 62% at TCE rates of $19.8k/day. Forward cover should move higher with upcoming charters on the four feeders and one intermediate.Maintain Outperform rating and price target of $30.00/share. Our container market outlook stays favorable and numerous longer term charters at higher rates create forward cash flow visibility. Even though the stock was up 325% in 1H2021 and has fully recovered from the 18% drop in July, the stock is still flat in 3Q2021 despite improving fundamentals, new time charters and an acquisition. Improving operating results and declining financial leverage should allow shareholder friendly moves, like paying a regular and/or special dividend if added acquisitions don't materialize. Read More >>