GLNG - Golar LNG's Rise As A Key Player In The Growing FLNG Market

2023-08-28 09:26:23 ET

Summary

• Golar LNG owns 2 out of 5 FLNG ships in the world, positioning it well for the projected LNG deficit in Europe.
• The delivery of the second FLNG vessel in September and a 20-year contract with BP in 1Q24 should boost GLNG's short-term prospects.
• In the long term, GLNG is expected to benefit from Europe's increasing dependency on LNG, making it an attractive investment opportunity.

Golar LNG Limited (GLNG) builds, owns, and operates marine infrastructure for the liquefaction and regasification of LNG. It currently owns two out of every five existing FLNG ships in the world, which positions it perfectly for the projected LNG deficit in Europe.

Floating liquefied natural gas vessels ((FLNG)) have been designed to facilitate the production, liquefaction, and storage of natural gas at sea. If you have a producing well at sea, you can add an FLNG vessel and liquefy the gas for transportation on the sea.

Golar LNG is both a short-term and long-term investment opportunity

• In the short term , the company should re-rate with the delivery of the second FLNG vessel , which is scheduled to deliver in this quarter ( in September), and in 1Q24, it should start its 20-year contract with BP.
• The market pricing indicates that this may not be fully reflected in the share price. The 2024 revenues and profits should double due to the delivery of the vessel. Historically, GLNG was trading around 8-10 times EV/EBITDA. It trades around 8x now on 2023 projections and around 5x on 2024 projections. It indicates that 2024 is not fully reflected in the share price.
• The short-term trading opportunity is supported by the 150 million USD buyback and by the fact the company just announced its first dividends in five years. The yield is 5% now, and the dividend size may increase with the increased profits next year due to the operation of the second FLNG.
• GLNG is a long-term attractive play as well. Due to the Russian war, Europe is now dependent on LNG. That dependence will drive demand for FLNG. Golar is planning to add more ships. It already bought one vessel for conversion, and two other projects are assumed by the brokers.
• The second ship delivered this year is not in the price, and the additional vessels are not priced at all. Golar is the global leader in FLNG and should be the beneficiary of the LNG demand.

Conclusion

In the short term, GLNG should increase as the second FLNG vessel is delivered in September and starts its 20-year contract with BP in 1Q24. The short-term thesis is supported by USD150 million buyback and dividend initiation. In the longer term, GLNG should benefit from Europe's increasing dependency on LNG. Golar is the global leader in FLNG and should be the beneficiary of the LNG demand.

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