Fra DNB analyse

FLEX LNG
Top pick next six months
We reiterate our BUY and NOK108 target price and
identify FLEX LNG as our shipping top pick looking at
the next six months. Its proven premium earnings and
low cash break-even offer downside protection while
we expect new long-term contracts to boost dividend
visibility into 2020.
Small changes to our operating estimates. We have not changed our operating
estimates for 2019 but have cut 2019e net profit to USD17m (USD22), while 2020e
net profit remains 106m based on average sailed-in MEGI rates of USD84k/day. For
2021e we have raised net profit by 3%, to USD126m, based on average sailed-in
rates of USD73k/day.
USD18k/day premium gives FLEX LNG positive cash flow in weak years. FLEX
LNG is likely to report a sailed-in spot market rate of USD61k/day for 2019 with its
latest design vessels, which is above TFDE vessels (previous design) operating in the
spot market of USD44k/day for 2019 (including Q4 guidance), hence a premium of
USD18k/day for the new design. Average TFDE sailed-in rates in 2013–2019
(including Q4 guidance) are USD28k/day, meaning the previous designs operating in
the spot market in the past seven years would have run at a cash flow deficit. Yet,
when adding the premium, FLEX LNG vessels would have made USD46k/day,
~USD1k/day above its guided cash break-even of ~USD45k/day for 2021e.
Could pay 25% of market cap in one year when vessels on long-term contracts.
FLEX LNG has USD57m in cash at end-Q3 and USD50m in available RCF, which can
almost cover the capex of USD56m not yet covered by financing agreements (FLEX has
also a RCF of USD270m from Mr Fredriksen). Thus, FLEX is fully funded and ready to
pay out all excess cash in dividends. However, we have assumed a cautious 75% payout ratio pending contract announcements, which we believe would materialise in the
next 1–6 months. FLEX LNG receives USD125m in debt proceeds from bank financing,
which can rise to USD135m subject to long-term employment and to USD150m though
a sale/leaseback structure. Thus, FLEX LNG could lift earnings visibility and its cash
balance, allowing for an even higher pay-out ratio. We have a 2021e EPS of
NOK21/share based on USD73/day. We reiterate our BUY and NOK108 target price
based on 0.8x our 1-year forward NAV of NOK135/share. Our current NAV is NOK129.