Full Book Protecting Against Shipping Rate Declines

The tide has turned but Euroseas is well protected

Smooth Sailing as Euroseas Rides The Tide of Higher Shipping Rates

ESEA reported impressive 2022-1Q results reflecting an expanded fleet and higher shipping rates.

Michael Heim

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Industrials

Transportation

Euroseas Ltd.

<p>Euroseas, LTD reported 2022-4Q results that were generally in line with expectations. Reported EBITDA and Net Income were slightly better than expected due to lower operating costs. However, adjusted EBITDA and Net Income were slightly below expectations due primarily to a $3.9 million reduction associated with the amortization of fair value of below market time charters acquired. The 12.1% increase in net revenues was the result of an increase in the number of vessels (18 versus 15). Average TCE rates of $29,399 per day were slightly above our $28,900 forecast and slightly below year ago rates of $30,068. Steady rates reflect ESEA&#8217;s full charter position.&nbsp;With results coming in near expectations, management was once again able to reward investors by declaring a $0.50 per share quarterly dividend (same as the previous quarter) and by repurchasing more than 250,000 common shares on the open market.</p>
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<table border="1" style="border-collapse: collapse;width: 100%">
<tbody>
<tr>
<td style="width: 16.6667%">
         </td>
<td style="width: 16.6667%">2022-4Q</td>
<td style="width: 16.6667%">2021-4Q</td>
<td style="width: 16.6667%">2022-3Q</td>
<td style="width: 16.6667%">Noble Estimate</td>
<td style="width: 16.6667%">
         </td>
</tr>
<tr>
<td style="width: 16.6667%">Net Revenues ($mil)</td>
<td style="width: 16.6667%">$42.9</td>
<td style="width: 16.6667%">$38.3</td>
<td style="width: 16.6667%">$46.0</td>
<td style="width: 16.6667%">$42.9</td>
<td style="width: 16.6667%">
         </td>
</tr>
<tr>
<td style="width: 16.6667%">Adj. EBITDA</td>
<td style="width: 16.6667%">$22.9</td>
<td style="width: 16.6667%">$26.2</td>
<td style="width: 16.6667%">$30.0</td>
<td style="width: 16.6667%">$25.4</td>
<td style="width: 16.6667%">
         </td>
</tr>
<tr>
<td style="width: 16.6667%">Adj. Net Income</td>
<td style="width: 16.6667%">$17.7</td>
<td style="width: 16.6667%">$23.0</td>
<td style="width: 16.6667%">$25.2</td>
<td style="width: 16.6667%">
<div>$18.5</div>
</td>
<td style="width: 16.6667%">
         </td>
</tr>
</tbody>
</table>
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   </p>
<p>The future continues to look bright for Euroseas given that 80% of its ships are fixed for 2023 and 54% for 2024 representing $425 million in contracted revenues. The full order book has become especially important given a sharp decline in shipping rates in the second half of 2022. Unfortunately, a company has repudiated its charter with Euroseas. Euroseas is pursuing legal action and seeking a replacement charter. Meanwhile, the company is growing with the order of nine newbuilds â€”&nbsp;the first of which is to be delivered next month and has a three-year charter at $48,000 per day. The addition of ships at a favorable rate should help offset a decline in rates as ships come off charter and prices are reset to current shipping rates. In an ideal world for Euroseas, shipping rates begin to rise to current booked rates by 2024 when charters come off. Under such a scenario, ship additions would help grow revenues, cash flow, and earnings instead of just plugging in reductions.</p>
<p> We are adjusting our 2023 numbers downward modestly to reflect the impact of lower shipping rates on rates for ships with charters expiring in 2023. We are also taking a cautious stance regarding the repudiated ship by assuming market rates, noting that our estimates are subject to upward revision should the company prevail legally. We reiterate our outperform rating and our $49 price target.</p>
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Euroseas Ltd. (ESEA)

Full Book Protecting Against Shipping Rate Declines

Fundamental Analysis:

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Full Book Protecting Against Shipping Rate Declines (ESEA)

The tide has turned but Euroseas is well protected (ESEA)

Smooth Sailing as Euroseas Rides The Tide of Higher Shipping Rates (ESEA)

ESEA reported impressive 2022-1Q results reflecting an expanded fleet and higher shipping rates. (ESEA)

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