GRIN - Grindrod Shipping (GRIN) - Asset Sales Enhance Dry Bulk Exposure - Raising Price Target
Added asset sales improve fleet profile and enhance dry bulk market focus. Agreements to sell two MRs and one small tanker for almost $50 million improves the fleet profile and shifts the focus to the dry bulk market. The Leopard Moon and Leopard Sun, two 2013-built MR refined product tankers, will be sold for $42.8 million. In addition, the Breede, a 2009-built small tanker will be sold for $6.8 million. All sales should be completed in 2Q2021. As a result, the fleet will consist of 15 Handysize, 16, Supramax/Ultramax, and one MR tanker that is bareboat charter-out.Asset sales reduce financial leverage. Disciplined capital strategy intact. Proceeds and existing cash will pay off secured debt on the vessels and high cost Sankaty debt of $26 million due in June. The debt maturity profile appears manageable with no added debt maturing in 2021. Capital allocation remains disciplined as evidenced by the decision to shun scrubbers. Buybacks might ramp up once the COVID-19 uncertainty passes.Increasing 2021 EBITDA estimate. Dry bulk market thesis intact. Given the firmer state of the dry bulk market, we are increasing our 2021 EBITDA to $59.6 million from $52.2 million. There is limited visibility into this year, but the year is off to a good start. Supramax rates averaged ~$11k/day in 2H2020 and both Supra and Handy rates are currently above $20.0k/day, which is counter to normal seasonality. While we expect some 1H2021 seasonality, the strong start to the year is positive.Maintain Outperform rating and increasing 12-month price target to $10.00/share from $8.00/share. A high quality asset base, consistent TCE rate outperformance and simplified corporate structure are positives, in addition to the firmer dry bulk market. After a challenging 2020, the stock has rebounded 58% in response to a firmer dry bulk market. Even though the stock is off to a solid start this year, we believe that the risk/reward remains attractive and a higher price target is warranted.Read More >>