GRIN - Grindrod Shipping (GRIN) - Price Weakness Creates Attractive Opportunity
Recent stock price weakness warranted? We don't think so and see no fundamental reason for the more than 12% drop, including more than 6% yesterday, seen since hitting a multi-year high of $27.10 last Thursday. The weakness is even more surprising since a competitor highlighted solid Supra market fundamentals last Friday.Positive bias to 2022 EBITDA and dividend estimates. Due to strong 4Q2021 results, high 1Q2022 forward cover and management color on the recent earnings call, our 2022 EBITDA estimate is $202.0 million based on TCE rates of $25.5k/day for Supras/Ultras and $22.1k/day for Handys. 1Q2022 is off to a good start with forward cover of 1,474 Supra/Ultra operating days booked at $24.4k/day and 1,103 Handy days booked at $21.9k/day. Current Supra FFAs are supportive of our outlook, with ~$29.0k/day in 2Q2022 and $32.0k/day in 3Q2022. Based on our EPS estimate of $5.98/share and a minimum payout ratio of 30%, our 2022 cash dividend estimate is $1.86/share with no stock buy backs.Purchase options on chartered in Supras/Ultras represent additional growth opportunities. Sale of older Handy assets might be attractive too. Unlike the IVS Phoenix that was acquired last year, there are five Supra/Ultras (out of seven) chartered in on a long-term basis that have purchase options that range from $15.6 million to $25.2 million. The purchase options create visibility on potential fleet growth, while maintaining a degree of flexibility due to the existing charter in terms.Dry bulk market remains volatile, but intermediate outlook appears promising. Positive macro and micro trends are intact, but near-term potential volatility heightened by invasion of Ukraine and Chinese moves to limit inflation. Even though TCE rates have rebounded after weather disruptions and other factors, the outlook remains favorable based on expanding demand, upcoming emission regulations and a low order book. We believe that the dry bulk market is close to balanced and TCE rates are likely to firm up over the rest of the year.Maintain Outperform rating and price target of $31.00/share. While the stock is up 32% this quarter, including a more than 6% loss yesterday, and we weren't surprised to see some profit taking after the strong price performance, we believe that the risk reward profile remains attractive. Trading at an enterprise value multiple of 2.5x estimated 2022 EBITDA, we believe that there is substantial upside potential. Read More >>