GRIN - Grindrod Shipping (GRIN) - Strong Cash Flow and Acquisitions Trigger Variable Dividend
Adjusting for IFRS 16 adoption, we calculate that adjusted 1H2021 EBITDA was $55.2 million, or more than double adjusted 1H2020 EBITDA of $22.1 million. The 2Q021 earnings call and early August web cast reinforced our positive stance on GRIN and the dry bulk market.Moving 2021 EBITDA estimate up again to $153.7 million from $125.0 million to reflect 1H2021 results, 3Q2021 forward cover and acquisitions. Visibility is solid into 3Q2021 with 3,012 days fixed at ~$28.3k/day. Handys have 1,326 days fixed at $25.2k/day, up from $18.1k/day in 2Q2021, and Supra/Ultras have 1,686 days fixed at ~$30.7k/day, up from $21.9k/day in 2Q2021. The forward cover represents close to 75% of 3Q2021 available days booked at an average TCE rate of $28.3k/day.On top of the attractive move to acquire IVS Bulk joint venture interest of 31.1% for $46.3 million, the IVS Phoenix, a 2019-built Ultra, will be acquired for $23.5 million. Purchase options on five chartered in Supras/Ultras represent additional growth opportunities over the next several years.Disciplined capital strategy enabled acquisitions of the JV interest and IVS Phoenix. New variable dividend policy with stock buyback flexibility is positive. Last week, a dividend was announced with a targeted payout is 30% of the previous quarter's adjusted net income, or a base dividend of $0.03/share plus a combo of added cash and/or stock buybacks. The first dividend will be declared based on 3Q2021 operating results and our 4Q2021 dividend estimate is $11.8 million, or $0.61/share and an annualized yield of ~20%.Maintain Outperform rating and increasing 12-month price target to $24.00/share from $18.25/share. A high quality asset base, consistent TCE rate outperformance and simplified corporate structure are positives, in addition to the firmer dry bulk market. Even though the stock has rebounded from recent weakness and gained 189% this year, we believe that the risk reward profile remains attractive, especially with the new variable dividend policy and the latest acquisitions of the last joint venture interest and the 2019-built IVS Phoenix Ultra. Read More >>