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Disclaimer: This is not financial advice. I am learning how to valuate companies and am using this platform to showcase and improve upon my analysis. Suggestions/Comments are welcome.

1.5 Year Target: 38.68(19% ROI, 12.3% geometric return per annum) – 03/10/2025

Emphasis on reducing loss of permanent capital + margin of safety: this is not a security I would own individually. I would only consider this in a portfolio where it is net positive for me regardless of the state that occurs (Bear, Neutral, Bull).

Current expectations(guess) of future probability of events:

50% chance of Bear Case

30% chance of Neutral Case

20% chance of Bull Case

Expected Value: 38.68

Current Price: 32.5

However note that a +/- 10% change in the expectations significantly alter the EV.

60% Bear, 30% neutral, 10% bull -> EV: 29.88

3 Cases:

• Bear Case: $11.47/share (assuming 3.71$/TEU levels post-current time charter rates – 2023 levels)
• Neutral Case: $43.57/share (assuming $4.80/TEU levels post-current time charter rates – 75% of 10yr avg.)
• Bull Case: $99.54/share (assuming $6.71/TEU levels post-current time charter rates – 10 yr avg according to ESEA management)

Assumptions baked in to implied share price:

• Shares outstanding of 7,014,331
• Discounted 50% of PPE to be equivalent to scrap value of vessels
• Vessel Operating Expenses increase 5% annually from 2024 spend levels.
• Rising family-affiliated company fees (management fee, executive compensation, ship brokering fees) of 5% annually, inclusive of stock-based compensation and bonuses, excluding EuroChart S.A. Ship Brokering services.
• constant 10MM in other voyage expenses(i.e., vessel construction, dry-dock, retrofit, other -> on the extremely high side for conservatism)
• Interest Payments of 8MM till 2027, then constant 14MM to account for 120MM vessel, assuming 60% debt at 30 yr 8% interest per annum
• Vessel depreciation of 22.84MM and 27.64MM after vessel construction 4Q2027
• Discount rate of 10% (higher dr makes further out FCF less negative)

Key Driver for this small segment of the industry is charter rates. Charter rates on a vessel-to-vessel basis is what drives valuation for this company. Forward looking earnings are hard to assess.

There are a bunch of factors we cannot predict in this business so I would like to try to value this company with a high margin of safety.

Some Key decision points:

• Will management distribute FCF to shareholders via special dividend, share buybacks, higher div. yield? (If yes, hold. If no, exit)
• Watch charter rates as we approach other vessel time charter expirations
  • Speed of charter rates is very important.

Concerns: Medium-to-Little alignment with non-family/director shareholders.

• Yes, they have a significant equity stake in this company. Yes, it is in their interest to manage these vessels well.
• However, they profit regardless of market conditions. This is of concern to equity investors as regardless of market conditions, management still gets a nice bag of money to take home with them due to family-affiliated companies revolving everywhere from:
  • Management company
  • Insurance company
  • Brokering company (when they move vessels around entities, buy/sell, they reap a nice commission)
  • Stock-based compensation of 1-2MM per year, increased as of late due to rising industry $/TEU. Recently 60,000 shares SBC
  • Financial company – able to borrow funds from other family-affiliated corporations for financing

Benefit: Majority-shareholders are family-affiliated ~59.55% of Shares outstanding as of 2023.

Other

How does the 5% rule apply for US shareholders? Will they pro-actively dilute or buy shares to prevent this US tax rule from playing out?

Company’s authorization capital stock of common shares for 120,000,000 common shares and 20,000,000 preferred shares as of 2006 filing. As of 2023 data, there are 7,014,331 shares outstanding. Potential to dilute current shares by -93.75%.

Edit: 02/18/2025 – provided visual for case scenario

Edit: 03/01/2025 – working on rationale; will be making model short-term (1-4 years) valuation