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FLEX LNG 8% below market on Q2e EBITDA We are 8% below consensus on Q2e EBITDA (results due at 08.00 CET on 28 August). Q2 saw one vessel on contract and one trading in the spot market. Challenging market conditions in March and April lead us to expect a TCE rate of USD38k/day for Q2, rising to USD60k/day for Q3. We reiterate our BUY recommendation and NOK16.6 target price.
8% below consensus on Q2e EBITDA. We expect total operating revenues of USD9.1m in Q2, 4% below consensus (Bloomberg) of USD9.5m, leading to EBITDA of USD5.1m, 8% below consensus of USD5.6m. We forecast zero net profit for the quarter, USD0.5m above consensus of USD-0.5m.
Market strength into summer. We maintain our Q2 TCE rate estimate of USD38k/day, while we have raised our Q3 assumption from USD52k/day to USD60k/day. In June, FLEX LNG operated one vessel in the spot market; we believe this will rise to two vessels in Q3.
With the USD270m (USD210m undrawn) Sterna credit facility and announced sale/leaseback, FLEX LNG is in line to have a cash balance of ~USD125m postdelivery of newbuild no.8 in 2020e (excluding any positive cash flow from operations and/or additional liquidity from placing vessels on long-term contracts). FLEX LNG could also tap its existing bank facility once 5- or 10-year charters are obtained. Further, we would not rule out ideas on fleet expansion on the earnings call. The company has said in the past that it will not stop at a fleet of eight vessels, and probably not at 10 either. The Fredriksen Group controls three vessels outside FLEX LNG – two were ordered in February this year, and the third was signed in July.
We reiterate our BUY recommendation and NOK16.6 target price, based on 13x our end-2019e run-rate EPS of NOK1.28. LNG peers are trading at an average P/E of 13x excluding Golar LNG. Our Q4 2019e run-rate EPS includes six of the eight FLEX LNG vessels; hence earnings capacity looks set to increase into 2020. We calculate a current NAV for FLEX LNG of NOK11.2/share.
BUY