GLNG - Golar LNG: Top Idea In The LNG Space

2023-12-05 20:36:50 ET

Summary

• Golar LNG builds, owns, and operates marine infrastructure for LNG liquefaction and regasification, with a market cap of $2.3 billion.
• Golar's assets include FLNG vessels currently working for Perenco, with the potential for new contracts that could double EBITDA.
• The arrival of FLNG Gimi to the BP offshore field and its operation in late 2024 will increase Golar's EBITDA by 50% and potentially result in a dividend hike.
• Strong catalysts in the next six months.
• Investment case supported by dividends and USD150 million buyback.

Introduction to Golar LNG

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

Golar has a market capitalization of USD 2.3 billion, a net debt of USD 1.0 billion, and an enterprise value of USD 3.3 billion. In 2022, Golar generated an EBITDA of 360 million in 2022.

The company has been historically trading at EV/EBITDA multiple of 6-8 times.

Golar Assets

Golar is focused on 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 has the following vessels:

1. FLNG Hili - currently working for Perenco.
2. FLNG Gimi - was delivered to Golar in November (construction costs USD 1.7 billion). Gimi is now on its way to Nigeria to start its 20-year contract for BP.
3. FLNG Fuji - was acquired for USD 77 million, delivery is scheduled for 1Q24 - USD 177 million deposit for conversion already made by Golar.
4. Golar Arctic - LNGC carrier contracted with an Asian Shipping company. Golar already divested 15 LNGC carriers - Golar will most likely divest Golar Arctic as well.

Hilli - New Contract Could Double Golar EBITDA

• The current Hili contract with Perence expires in mid-2026. A new contract has not been announced yet.
• The Perenco contract covers only 50% of Hilli's design capacity. It means only 50% fees vs its potential fees.
• Golar is now looking for a new contract that would have a higher utilization.
• Any improvement will have a positive impact on the EBITDA contribution from the unit.
• For instance, assuming a 90% and similar pricing as the current contract would almost double the current EBITDA of USD 371 million to USD 668 million.
• Golar LNG stated that it is in detailed discussions with three specific parties regarding new employment opportunities for FLNG Hilli.
• The company anticipates that contract lengths could be between 10 and 20 years.
• If you assume the new contract at 90% utilisation - the EBITDA would increase by USD 300 million.
• If you apply the EV/EBITDA range of 6-8 times, the new contract would increase Golar´s Enterprise value by USD 1.8 - 2.4 billion. That is a material upside vs the current market cap of USD 3.3 billion.
• The market expects the new contract to be announced in the next 6 months. This will be a major catalyst for the stock.

Gimi - The BP Contract Will Increase Golar EBITDA by 50%

• The new FLNG Gimi, delivered to Golar in November, is now on its way to the BP offshore field located offshore between Senegal and Mauritania.
• Arrival is expected in January 2024.
• Once Gimi arrives, Golar will start earning revenues - BP will start paying Golar standby fees.
• Once the commissioning starts, Golar revenues will further increase.
• Once in operation, Gimi should generate an EBITDA of USD 215 million.
• Golar will collect 70% of that - USD 150 million.
• The Gimi operation is expected to commence in late 2024.
• Gimi's operation should increase Golar´s current EBITDA by 50%.
• The increased cash generation should result in a dividend hike.
• Once Gimi is in operation, Golar is expected to refinance the USD 700 million of its debt with a lower interest margin. The refinancing would increase Golar's profitability and its cash flows to equity holders.

Dividends and Buybacks support the investment story

Golar has been paying a dividend of $0.25 per share per quarter, which represents a 5% dividend yield. After the Gimi operation commences next year, the dividends should increase. Market consensus expects dividend doubling.

During the last quarter , Golar repurchased 0.2 million shares at an average price of $21.36. The company still has $117 million remaining from its approved buyback scheme of $150 million.

Strong catalysts ahead

1. The new contract with Hili will be a major catalyst for the stock - it has the potential to double the current EBITDA. The announcement is expected in the next six months.
2. The arrival of Gimi to the BP offshore field - is expected in January 2024.
3. Commissioning of Gimi - expected in the first half of 2024
4. Operation of Gimi - expected late 2024
5. Refinancing of Gimi debt - expected after Gimi operation.
6. Increase of dividends/buybacks - the operation of Gimi should result in a dividend hike. Currently, Golar pays USD 1 per share. Consensus assumes a 100% dividend hike to USD 2.
7. Conversion of FLNG Fuji - the ship will be delivered to Golar in early 2024. Further details on its FLNG conversion timing and potential contracts would be very value creative.
8. Sale of Golar LNG.

Conclusion

There are strong catalysts ahead supported by USD150 million buyback. After a few quiet years, strong news flow and material EBITDA jumps should rerate the stock in the next year.

Golar fell 5% following its earnings release last week despite no major surprises. A good entry point for both short-term and long-term.

For further details see: