I wrote here several times about COOL Co. First time when share price was around 75 NOK about five weeks ago. It is 105 today. Today ABG came out with PT of 154NOK. I remain very bullish on COOL for reasons I wrote before.
|The era of gas shipping is here|
|A pure LNG shipping company We believe rates could see all-time highs next winter Initiating coverage with BUY, TP of NOK 154|
|A pure LNG shipping company|
Cool Company Ltd. (CoolCo) is a pure-play LNG shipping company that owns and operates eight TFDE LNG carriers. The company aims to become a leading player in LNG shipping through consolidation opportunities and offering investors pure exposure to the shipping of liquified natural gas. It aims to keep the fleet exposed to the spot market, and to commit to longer-term time charters when prevailing market rates are deemed favourable. Eastern Pacific Shipping and Golar LNG are the two main shareholders, with stakes of 38% and 31%, respectively.
Gas forward curve yield new ATH for LNG rates in ‘23e
Global liquefaction capacity is expected to increase substantially in the coming years and recent events such as the Russian invasion of Ukraine and the EUs acceptance of gas as “sustainable” will likely add even more investments. We expect fleet utilisation above 90% already this year, and as the gas forward curve yields more than USD 1m/day in TCE, we believe rates could hit all-time high next winter. We model for a rate for a 160k TFDE to increase to USD 90k/day in ‘22e, up from an average of USD 87k/day in ’21. Further, we expect the tightening of the LNG shipping market to yield rates of 146k/day in ‘23e and 138k/day in ‘24e, again assuming that European and Asian gas prices remain well above the US price. As such, we model for avg. EBITDA in ’22-‘24e of ~USD 200m, which results in a 36-40% dividend yield in ’23-‘24e.
Initiate with BUY, TP of NOK 154
We initiate our coverage with a target price of NOK 154, derived from a 10% discount to our estimated one-year forward NAV. The forward NAV valuation methodology is based on estimating future asset (vessel) values from forecasted freight rates, which in turn is based on our proprietary supply and demand model. With a limited number of peers in the LNG shipping space, we argue that asset-based valuation is the most applicable pricing method for CoolCo despite modest liquidity in the second-hand market for LNG carriers.
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