Tag Archives: LNG

LNG Carrier Sector Update (BUY): Earnings Surge to Three-Year High

The dynamics for LNG carriers have changed and the cyclical inflection point is definitively behind us as spot rates surge towards levels not seen in three years. We see utilization rising steadily towards the end of this decade, with corresponding improvements in earnings, vessel values and share prices. We reiterate our BUY recommendation on LNG carriers and highlight Flex LNG (TP 18) and GasLog (TP 22) as our top picks.

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GLOG-US: Initiation (BUY, TP 18)

We initiate coverage of GasLog with a BUY recommendation and target price of USD 18. The company has a fleet of 27 LNG Carriers (including five newbuldings) with a contract coverage of 76% in 2017 and an average minimum back-log per contracted vessel of ~5.5 years. Although the secured cash-flow enables the company to pay dividends even at the trough (current annualized dividend yield at 8%), it also equates to less operational leverage at what we believe to be the expansionary point in the cycle from mid-'17. In addition, GasLog is exploring possibilities within the booming FSRU segment, and has an attractive source of financing trough its MLP (at least in the current environment of low interest rates). We find low risk and great valuation in GasLog and initiate coverage with a BUY recommendation and TP of USD 18.

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FLNG-NO: Initiation (BUY, TP 17)

We initiate coverage of Flex LNG with a BUY recommendation and target price of NOK 17.

The company has no vessels on the water in the current trough, but four MEGI LNGC newbuildings scheduled for delivery in 2018. Given our view that the trough is finally coming to an end in 2q17 and that the expansionary phase of the cycle is imminent, we find the setup of Flex extremely attractive. Adding the strong sponsor in Mr Fredriksen, we see additional upside from future accretive deals and positive bias from investment banker analysts.

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