|Shares Out. (in M):||7||P/E||0||0|
|Market Cap (in $M):||190||P/FCF||0||0|
|Net Debt (in $M):||480||EBIT||0||0|
|TEV (in $M):||670||TEV/EBIT||0||0|
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Euroseas is a floating cash machine worth $47-$77/share of hard asset value exiting 2024 (+50-200% upside). It's a cigar butt with catalysts. FCF will cover the entire market cap by 2024!
**** DISCLAIMER ****** THIS PRELIMINARY AND DRAFT BLOG POST IS PREPARED FOR DISCUSSION PURPOSES ONLY. COMMENTS AND ANY PERCEIVED ANALYSIS BELOW SHOULD NOT BE RELIED UPON BY YOU OR OTHERS TO MAKE ANY PRIMARY INVESTMENT. AUTHOR OWNS/MAY OWN AN INVESTMENT IN THE RECOMMENDED SECURITY AND MAY SELL/BUY OR OTHERWISE TRANSACT WITHOUT FURTHER NOTICE.
Euroseas operates a fleet of feeder and post-panamax container ships (i.e. think smaller/more niche assets) that are contracted out to ship operators. The company basically is an asset owner/capital allocator. You can value the company as being worth (i) the cash flow these vessels will generate over any period of time, (ii) what the ships will be worth after that period of time, and (iii) if any ships are older and need to be scrapped (25YR+ age) what is scrap value at that time.
I present the analysis below at 12/31/24. I picked this date based on the company having contracted cash flow visibility through 2024 (the vast majority of its vessels are under contract in 2022, 76% for 2023 and 55% for 2024).
At 12/31/24, a conservative estimate of net value value is $346MM (or $47/share +82% from current levels). A more optimistic estimate of net asset value would suggest $567MM+ of value or $78/share (+200%). Importantly, its very difficult to lose value here from $26/share. It would require inane assumptions, such as ignoring FCF generation over the next 3 years!
From 2022-2024, I (conservatively) calculate ESEA will generate $217MM FCF:
Euroseas has recently pruchased $363MM of new vessels being delivered over the next 2 years. Let's (conservatively) value these -60% at $143MM (less than half):
Let's just scrap every other vessel for $133MM (conservative)
Remaining net debt at 12/30/24 of $143MM
SUMMARY: ~$346MM (-$5MM adj working cap)= $47.40/share = +82% upside. You can debate what to pay for that today. Given the cash flows are locked in, all other estimates here are pretty conservative, and you have the upside Bull Case below.. a 10% discount rate seems reasonable... or $37/share. So $37 is my nearterm price target (+40% from here).
The (Not Unreasonable) Bull Case
Let's value those newbuilds at market prices! For simplicitly, we'll also ignore the idea that maybe.. just maybe... dayrates are higher than 25% percentile day rates for the uncontracted capacity coming up in 2023-24.
P.S. This math is not rocket science (you don't need to be a shipping analyst to model contracted cash flow and conservatively haircut asset values). Revenue is the contracted day rate (on their website and 20-F) x days under contract = contracted revenue. Operating costs are variable ($/day per vessel) and G&A is mostly fixed. Spot markets are disclosed by many brokers and sometimes google-able, so pick your number for the uncontracted vessels. Can ask management about capex, but its not much over the next 2.5YRs (no major dry docks). And simplisticaly just assume you scrap anything that's not brand new. And haircut what they just paid for newbuilds by 50% to be conservative. A bit of brain damage, but not rocket science.
P.P.S. Worth mentioning, the other container stocks seem cheap as well (GSL, Danoaos).
Accumulated FCF (covers the market cap)
New charter announcements in 2H 2022 for uncontracted capacity in 2023-24
Accretive shareholder transactions
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