COOL – Top Pick on EU Diversification Away from Russian Gas

COOL is one of my top picks to play EU diversification of gas supplies away from Russia. I first wrote here about COOL a month ago when it was trading at 75NOK. It is 95 NOK now. Fearnley says: COOL remains one of the few and best plays on these improving market conditions. They increased their price target from 105NOK to 130 NOK, just three weeks after their initial report. There will be further re-rating. The share price move should remain rapid.

Fearnley Research Summary:

Materializing on Improving LNGC Market
Our take: Likelihood of capitalizing on strengthening fundamentals, revising TP on period market outlook. Reiterate Buy, TP lifted to NOK 130 (NOK 105).
 The LNGC market is playing into the hands of COOL with increasing expectations both for prompt and time-charters as political focus on energy diversification and securing supply intensifies. COOL remains one of the few and best plays on these improving market conditions (see our initiation report March 9th).

We see increased likelihood for COOL to lock in strong earnings for its open positions over the coming months and reiterate our Buy rating while revise our (base case) TP to NOK 130 (Buy, NOK 105 March 29, 2022) reflecting USD 100k/d rates for two open positions in 4q22 (in addition to the USD 120k/d TC previously reported in the market). This underscores the operational leverage and further potential in the platform, while appetite for modern tonnage and rising steel values reduces downside risk.  

Freight rates and operational leverage Period rates for modern vessels continue to improve with TFDEs now quoted at USD 102.5k/d for 1-year durations followed by 3-year duration at USD 85.5k/d. COOL being one of few with open capacity to the improving market could by locking in the two vessels (opening in 4q22) at USD 100k/d generate additional USD 0.4/s EPS for 2023. Given the rumored (TW) 1 year fixture at USD 120k/d and current market assessment, we argue the 100k level to be on likely and on the conservative side.  

Earnings focus over NAV into potential high-cycle We argue NAV lags price development as we head into a potential high-cycle and see earnings as a more appropriate metric to capture current earnings prospects. This is further backed by multi-year charters also seeing strong developments. Rising steel values and limited yard capacity through 2026 (at least at current NB prices) also reduce downside risk together with clear charter preference for modern tonnage. We estimate NAV at NOK 85/sh. and have increased our 2022 EBITDA estimates by 12% and 2023 EBITDA by 18%. Including the two additional TCs we see avg. EPS at USD 2.2/sh over ‘22/’23 which at 7x earnings reflect the NOK 130 TP.  

FEARNLEY SECURITIES ACTED AS JOINT LEAD MANAGER & BOOKRUNNER IN CONNECTION WITH THE EQUITY RAISE AND LISTING OF COOL COMPANY  

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Disclosure: 

The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.

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