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FLEX LNG High leverage, but manageable FLEX LNG has added two newbuilds to its portfolio without needing equity financing, on our calculations. We calculate a USD~125m cash balance post vessel delivery of newbuild no.8 (not including cash flow from operations or higher leverage on existing LNGCs once longer-term contracts are secured). Hence, we see limited liquidity risk into 2020, thanks largely to strong backing by the main owner. FLEX is shelving FSRU for now to focus on being a pure LNG transportation company. BUY and NOK16.6 target price reiterated.
“Subsequent events” was a large part of the Q1 report. FLEX LNG reported Q1 below expectations, but provided details on recent developments. We have made some operational changes for Q2e, adjusted for the FLEX Rainbow sale leaseback transaction, and added two vessels to the fleet list. We estimate 2018e EBITDA at USD37m, 15% below consensus, probably from lower freight rates assumptions.
Tonne-mile set to outpace supply growth to 2020. We forecast 10% fleet growth in 2018, 7% in 2019, and ~5% in 2020, below our 2018 tonne-mile demand forecast of 16%, 2019 of 14%, and 2020 of 10%. This leads us to our forecast that MEGI rates would average USD75k/day for 2019e and USD93k/day for 2020e.
Thanks to the USD270m (USD210m undrawn) Sterna credit facility and the announced sale/leaseback, FLEX LNG would have a cash balance of USD~125m post-delivery of newbuild no.8 in 2020 (excluding any positive cash flow from operations and/or additional liquidity from placing vessels on long contracts). FLEX could also tap its existing bank facility once 5- or 10-year charterers are obtained.
We reiterate our BUY recommendation and NOK16.6 target price, based on 13x (12x) our end-2019e run-rate EPS of NOK1.28 (NOK1.38). We have applied a higher multiple due to increased size, the solid backing from its main shareholder, and the unwarranted large discount to its peers due to deferred cash flow, which we expect with its 2019 vessel deliveries. Our EPS estimate has been hurt by increased interest cost, somewhat outweighed by a positive currency effect.
BUY