GOLAR LNG Several catalysts We reiterate our BUY while lowering our target price to USD21 (USD23). Golar LNG is fully funded with a solid cash position ready to take delivery of Golar Power on time, and the 45% SOTP discount makes backlog monetisation something to consider.
2020–2021e EBITDA unchanged. We have not changed our 2020–2021e EBITDA as shipping’s Q1 guidance was in line with our forecast, while we have cut our 2020e net profit by 24% and 2021e by 6% as we have pushed the Golar Power start-up to end-Q1 from the start of Q1 and updated the BRL/USD (the Sergipe project is settled in BRL).
Today, the single-largest catalyst for the stock is higher LNG prices… which are currently USD3/mmbtu (down 50% YOY and down 67% from two years ago). This erodes potential shipping tonne-mile demand growth, leaving less room for FLNG growth, plus a Hilli utilisation increase. Thus, it puts a cap on assets with cash generation today. 40m tonnes of new LNG to the market in 2019 (13% growth) combined with coronavirus lowering Chinese demand explains the decline, but 2020 sees 20m–25m tonnes of new LNG, which should be absorbed at higher prices.
…followed by the second-largest catalyst being a monetisation of the backlog… Golar LNG has been a project company that has monetised its building backlog and we expect that to continue, in particular as the stock is trading at a ~45% discount to our SOTP. In Q1, Golar LNG’s EBITDA set to expand by USD85m with the 25-year contracts from Golar Power (FSRU USD21m and Sergipe USD64m (based on current BRL/USD)) and from 2022 the 20-year FLNG contract with BP, which yields USD151m EBITDA to Golar LNG.
…but Golar LNG could also benefit from low LNG prices in the future. The recent BR Distribuidora Partnership (leading Brazilian fuel supplier with 7,600 fuel stations) offers an extensive platform for Golar Power to roll out LNG to an even wider range of industrial and transport-related clients using its spare regas capacity in Brazil. If Golar Power captures USD1/mmBtu for 50% of its spare regas capacity, it yields USD215m in EBITDA to Golar Power.
BUY reiterated, target price cut to USD21 (USD23) based on 1.0x our updated SOTP when updating ship valuations, the latest BRL/USD, and Q4 results. The SOTP breakdown includes USD8.0/share in FLNG, USD6.1/share in shipping based on 60% LTV, USD5.9/share in Golar Power, and USD1.1/share in Golar LNG Partners.