GRIN - Grindrod Shipping (GRIN) - Better Than Expected 1H2020 Results. Firmer 2H2020 Outlook.
Reported adjusted 1H2020 EBITDA of $28.8 million was a sharp improvement over 1H2019 number of $14.7 million and strong dry bulk TCE rate outperformance continued. Adjusting for IFRS 16 adoption, we calculate that adjusted EBITDA was $21.2 million in 1H2020, which was above expectations due to forward cover and the cargo centric focus.TCE rate outperformance continued in 1H2020, with Handysize TCE rates $2,067 (56%) above the BHSI index, and Supramax/Ultramax TCE rates $3,444 (60%) above the BSI-58 index. The outperformance versus the indices generated almost $20.0 million of additional TCE revenue, or $7.0 million in Handysize and $12.2 million in Supramax/Ultramax.Adjusting 2020 EBITDA to reflect better than expected 1H2020 operating results and firmer dry bulk market. Given the positive variance in 1H2020 and the firmer state of the dry bulk market, we are increasing our 2020 EBITDA to $46.0 million from $39.8 million. There is some visibility into the 2H2020 due to forward cover, but the majority of days remain open, similar to 1H2020. In the dry bulk segment, about 1,400 Handysize operating days have been booked at $6.3k/day and about 1,740 Supra/Ultramax operating days have been booked at $10.2k/day. About 150 tanker operating days have been booked at ~$12.2k/day.Corporate simplification mostly done and asset sales improve fleet profile. Acquisition of IVS Bulk joint venture interest was major event of 1H2020. In February, GRIN acquired an additional 33.25% equity and preferred interest in IVS Bulk from Regiment Capital for $44.1 million. With a combined interest of 66.75%, GRIN now controls IVS Bulk and the JV results were consolidated into operating results beginning in 1H2020. Two MR product tankers and one small tanker were sold for gross proceeds of $38.6 million. Also, the handysize Nightjar is expected to be sold for $5.1 million in 3Q2020. Combined with asset sales, the fleet profile has improved and the focus has shifted toward the dry bulk market.Maintain OUTPERFORM rating, and 12-month price target of $8.00/share. A high quality asset base, consistent TCE rate outperformance and simplified corporate structure are positives. GRIN has dropped more than 75% since the June 2018 NASDAQ listing and weak price performance, including a 37% drop this year, creates a compelling risk/reward profile.Read More >>