After more than two years of abysmal earnings, we now expect the worst is finally behind us. Although the recent increase in newbuilding contracting as a cause for concern, we remain confident in medium term improvements in earnings, vessel values and share prices. We reiterate our BUY recommendation on the LNG Carrier segment and highlight Flex LNG and GasLog as our top picks.
Estimate changes: We leave our demand forecast more or less unchanged, but increase our net supply forecast in 2019E to 8% (6%) and in 2020E to 4% (2%) primarily due more newbuildings contracted YTD than we previously had forecast. This lowers utilization in 2019E with 1%p to 83% and 2012E with 3%p to 87%, representing spot rates (TFDE 160k cbm basis) of USD 64k/d (68k/d) and USD 82k/d (96k/d), respectively.
Peer overview: We estimate an average peer EV/EBITDA of 14x in 2018E, falling to an attractive 8x in 2019E and 6x in 2020E. This is based on TCE revenue rising from below cash break even in 2017E to more comfortable levels towards the end of this decade.
Key investment opportunities: Although diluted somewhat in recent years, 2H have historically been a seasonally strong period for LNGCs. Additionally, several new LNG export facilities are rapidly coming onstream with some volumes not yet assigned to specific tonnage. We believe 2Q17E marked the trough and reiterate BUY recommendations on all our covered companies ahead of both short-term and long-term improvements. Our top picks remain Flex LNG and GasLog