The company recently concluded its inaugural vessels acquisition, purchasing five Capesize vessels (built 2010/11) at an en-bloc consideration of USD 139m (accretive vs our valuation of USD 156m). We expect positive momentum from further fleet growth, increased analyst/investor focus and eventually improved share liquidity. However, this is offset by the current dilutive share class structure. Thus, we initiate coverage of Hunter Maritime Acquisition with a Neutral recommendation and target price of USD 9.2.
Capital structure: The company was founded in 2h16, initially with 4,312,500 Class B shares at USD 0.0058/sh. Since its inception, 15,173,100 Class A shares have been issued at USD 10.0/sh, in addition to 10,942,963 warrants issued with a strike we understand to be USD 11.50/sh. The Class B shares (reduced to 3,793,275) will be converted into Class A shares after the closure of the ongoing purchase transaction (we expect around mid/late May), and will constitute 20% of shares outstanding. Thus, to our knowledge, the company will commence operations in 2q17 with negligible debt and 18,966,375 common shares outstanding at an average gross price of USD 8.0/sh. See graph below for details an ownership structure.
Valuation: Our target price of USD 9.2/sh is based on a weighted average of current (USD 8.8/sh) and future NAV, in combination with a mid-cycle EV/EBITDA in 2018/19E.