GRIN - Grindrod Shipping (GRIN) - CEO Comments and EBITDA Revisions Impact Price Target
Positive CEO comments from last week's dry bulk panel at Marine Money Week bolsters outlook. CEO Martyn Wade confirmed that dry market fundamentals have stayed better than expected. Consistent with Wade's comments earlier this year, shippers are focusing on "just in case" as opposed to "just in time". Also, Commodore Research & Consultancy has highlighted low coal inventories in China and limited Atlantic basin spot Cape availability as two factors that could help Capes, which would positively impact the entire dry bulk market.Dry bulk market thesis intact. Supply/demand fundamentals appear favorable and 1H2021 TCE rate performance has been better than expected. The order book and supply growth remain historically low due to rate volatility, regulatory uncertainty and declining capital availability, while demand should rebound on the back of global stimulus packages and solid secular minor bulk trends. While we still expect some late 2021/early 2022 seasonality, the recent move in the Baltic Exchange indices and the forward curve are very positive.Increasing 2021 EBITDA estimate. Quarterly reporting starts in mid-August. Given the firmer state of the dry bulk market and higher TCE rate assumptions, we are increasing our 2021 EBITDA to $101.4 million from $71.1 million. There is limited visibility into the second half of the year, but the year has started off better than expected and the tone entering 2H2021 is clearly positive, with TCE rates north of $30.0k/day.Disciplined capital strategy intact and building dry powder for opportunities, including joint venture interest. Given the strength in the dry bulk market and higher operating cash flow, we believe that net debt should drop into the $83.3 million range by yearend 2021. We believe that the improved financial position creates flexibility, which is important in case the partner in the joint venture decides to exit.Maintain Outperform rating and increasing 12-month price target to $18.25/share from $12.50/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 and doubled this year 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 >>