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Gas shipping: Exmar surprises investors with LNG deal; BW LPG climbs up on strong VLGC market

Gas shipping: Exmar surprises investors with LNG deal; BW LPG climbs up on strong VLGC market
All gas shipping stocks under our coverage, barring BW LPG, slipped in the absence of key triggers after the roll out of 1Q15 results. Our coverage portfolio was down 2% in June, more than offsetting the 1% gain in May.

BW LPG’s shareholders continue to reap benefits from the strong momentum in the VLGC freight market, corroborated by a solid 4% rise in June after the healthy dividend pay-out in May. VLGC operators are making supernormal profits in the tight VLGC market, thanks to higher propane exports from the US and congestion at Indian ports. We maintain our Attractive view on the stock with a fair value of NOK 75 per share.

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On 1 July, Exmar entered into an agreement with Flex LNG and Geveran Trading, under which Exmar and Geveran will transfer their LNG assets to Flex LNG, in exchange for new shares in the company. Exmar will hold a 64.6% stake in this merged entity, to be renamed Exmar LNG. This merged entity will have an estimated enterprise value of ~USD 2bn. The stock surged 15% after this announcement in July, making up for the 2% fall in the previous month, and is trading close to our fair value estimate of EUR 10.70.

Gaslog retreated 4% in June following the 7% drop in May because the soft LNG freight market dampened investor sentiment. Notwithstanding, we reiterate our Attractive stance with a fair value of USD 25 considering its high charter cover. Meanwhile, Gaslog completed the dropdown of three vessels to Gaslog Partners for an aggregate consideration of USD 483m.

Teekay LNG Partners clearly underperformed its peer group, sliding 8% in June because of concerns over lower distribution coverage and weak industry fundamentals in the near term. In June, the company ordered two fuel-efficient LNG newbuildings to serve BP Shipping for 13 years on time charter. It is worth noting that the stock offers a healthy dividend yield of ~9% after the recent correction.

On 30 June, Golar LNG and Perenco agreed on the material commercial terms for GoFLNG Hilli in Cameroon. The terms of the agreement are now subject to finalisation with Societe Nationale De Hydrocarbures (SNH) and approval from the government – both are expected by 3Q15. The project will deliver an EBITDA of USD 170m to USD 300m for Golar in the first full year of operation, using 50% of the production capacity.

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Source: Drewry Maritime Equity Research

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