Pareto summary: With energy security becoming the new buzzword after the tragic Ukraine- invasion, modern LNG carriers are set to benefit. CoolCo has already secured one timecharter at a stellar rate since its recent inception – and we expect more to come. Ofer and Trøim have created a vehicle that provides plenty of leverage both operationally and financially – and having traded down since the IPO with initiate coverage with TP of 100 and ~25% upside
I wrote about CoolCo about two weeks ago. I suggested CoolCo as a qtrading idea for the case situation in Ukraine escalates further and gas supplies get interrupted. This did not happen yet, CoolCo is up only a few % since I wrote about it. I belive the idea still stands. The company is progressing well, charter for usd120k per day was confirmed last week. The company should rerate. And if there is a gas interruption, it will skyrocket. Great risk reward in my view.
Pareto front page summary:
Clean play on TFDE-vessels, plenty of leverage…
With 8x LNGCs built in 2013/14, Golar spin-off CoolCo has most of its fleet exposed to the spot markets in the coming years – and already secured some stellar charters. Focus will be on growth, and we expect accretive transactions to consolidate the fragmented market. The set-up is clean and transparent, with a cash break-even of ~USD 50,000/day and ambition to pay out the ‘majority of free cashflow’ to shareholders. Under our conservative USD 70,000/day market for 2023 this means a yield of ~7% – but clearly room for more.
…to a market that is becoming increasingly political
The LNGC market has seen higher and higher peaks over the past years, with global gas prices continuing their wild swings. The tragic invasion of Ukraine has put European energy security in the spotlight, with the EU targeting a rapid substitution of at least 35mtpa of LNG equivalent. The LNG market is already tight – providing plenty of arbitrage out of the US Gulf – and higher European prices to soak up cargoes from as far as Australia could mean that the current LNGC orderbook goes from a small 2023/24 concern – to not sufficient. The longer-term fundamentals are in any case appealing, with shipyard inflation full orderbooks making us doubt that we will have enough ships for 2025/26 – setting the stage for a true super-cycle. We will see more US export projects sanctioned – projects that are more tonne-mile intensive than others.
BUY TP NOK 100 – bull-case in ‘22/23 adds another NOK 15
We expect COOL to be an active consolidator and grow its fleet substantially in the years to come. Trading above our conservative NAV any ‘ship-for-share’ transaction should be accretive. We find EV/EBITDA 2023e of 6x attractive, with ample upside if more fixtures are secured. Our TP of NOK 100 is derived from a YE’23 NAV, and would increase to NOK 115 if H2’22 – 2023 averages USD 100,000/day, and another NOK 25 if we raise asset values by 10%. CoolCo is the leveraged bet on the near-term LNGC market – a bet we find intriguing given the political and strategic importance of LNG infrastructure now.
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