Tanker stocks around the globe were crushed on Thursday as the TeeKay group–with six US listed equities and bonds–reduced their dividend to shore up their balance sheet.
That was my oppotunity–and for OGIB subscribers. I’ve been following another tanker group–Golar (GLNG-NASD) and Golar Partners (GMLP-NASD) for years. I knew the companies, I had spoken to management for years and I knew how the stocks traded.
And I knew they were in much better financial shape than TeeKay: Golar has lower payout ratios and less debt. So when Golar dropped a massive 35% in a matter of hours due to the TeeKay scare, I alerted subscribers at a price of US$8.26. My yield at that price on a US$2.31 dividend is 28% even. This is on a stock that is regularly paying down its debtload, covering its dividend payments and just beat the Street in Q3 financials.
Now, TeeKay has a bigger fleet and has ships for both oil and gas, whereas Golar is exclusively a natural gas shipper–LNG. And the decline in LNG prices has actually increased the trade traffic. Golar also owns several floating LNG import terminals, called FSRUs–Floating Storage and Regasification Units. This is the hottest subsector of the global energy complex, with 5 new FSRUs ordered in the last 12 months. FSRUs are less than half the cost and can be delivered in half the time of a massive land based terminal. And of course, they can be moved if economics in the region change–it’s a ship after all!
Friday, the stock gapped open higher to over $12–and OGIB subscribers took great and fast profits. Here are some emails from my inbox this morning:
Thanks for the GMLP suggestion. I took my 28% one day gain. My wife and I will toast you tonight when we go out to dinner.- John C
Thanks and Merry Christmas Jack in Calgary
Thank you for GMLP Have you ever thought about expanding your service to include one more industry other than OIL- Happy subscriber!!! A Lynch, Maryland
Great call. Thanks for bringing that one to our attention. Jason P
Great Trade on the GMLP. I was out of the office and therefore missed it – but it is a great call anyway. Have a wonderful Holiday Season. Brian in B.C.
Thank you for the instant reply, you are the best, have to get more of my friends to join OGIB, got two poker buddies for you last year. Very much appreciate your spin on what you are doing, just going to follow your lead. No pressure Keith, keep up the good work. – Steve R, Saskatchewan
I’ve been sitting on lots of cash this year. So I had lots of dry powder for this trade. Be patient and wait for your time with your stocks.
This is the second quick money for OGIB subscribers in December. On December 4, my largest junior oil position, Canamax Energy (CAC-TSXv) was taken private at a 90% premium to market–giving me personally over $100,000 in liquidity (at a profit!) and cashing up many OGIB subscribers–just in time for Christmas.
Note: Text of bulletin that was sent out to paid subscribers is attached below:
PORTFOLIO PURCHASE
GOLAR LNG PARTNERS
GMLP-NASD
TeeKay, one of the largest tanker groups in the world, eliminated ALL their distributions today across all their publicly listed companies.
That is causing every tanker stock on earth to collapse today.
So I bought xxxx shares of GMLP at $8.26. GMLP is Golar LNG Partners–part of the Golar group. I have bought and sold these stocks a lot over the years. They are now managed by Tor Olav Troim, and the infamous John Fredriksen (a genius in his own right, but a cowboy) is no longer involved.
GLNG is a C-Corp (regular corporation) and GMLP is ALSO C-Corp as well–it is NOT an MLP. (They don’t file K1s)
At the current $8.02 price, GMLP now has an 28.8% yield (US$0.5775 per quarter or $2.31/yr). It has a contract backlog of 5.2 years on its fleet of ships (5 LNG carriers and 6 FSRUs) and over $2 billion in revenue. It does have 3.4x debt to cash flow at $1.275 billion, and an EV/EBITDA of 5.2 ($1.8 billion/$346 million)
The Street has been trading down all the MLP stocks all year (GMLP has debt and distributions like an MLP, and has the symbol GMLP, but it’s not an MLP), but today is ultimate fear day, and I’m buying stock.
The MLP game is built on the idea that high distributions that are ALLEGEDLY not impacted by commodity prices will exact a big premium from the Market. And for a few years that was true.
This year it has been well documented by both stock prices and scribes like analysts and newsletter writers–that is not the case. Hence the Great MLP collapse of 2015.
Now let me tell you where I think GMLP might be different. One is that as natgas and LNG (Liquid Natural Gas) prices around the world have collapsed, interest and demand in FSRUs–Floating Storage and Regasification Units (floating import terminals for LNG) has gone way up.
FSRUs are now the preferred source for LNG–they are less than half the cost of a larger land based terminal and can be delivered in under half the time. Operating costs are surprisingly similar. AND, of course, they can be moved around the world because they are ships! Tough to move a 200 acre land parcel, no matter how many barges you have ;-)
FSRUs are also contracted on longer terms–usually 5-10 years. So their cash flows get a bit bigger multiple. GMLP now has six FSRUs operating, and a 7th, the Tundra, that was recently contracted out for just 5 years.
Worldwide, 5 FSRUs have been contracted in the last 12 months, the most ever.
There is lots of LNG liquefaction coming onstream in both Australia and the US right now, so that should tighten up the LNG carrier market as well. I think that’s about bottoming right now.
GMLP has 3 LNG carriers coming off contract in two years, at the end of 2017. The Street is nervous those contracts will get re-done at much lower levels. That’s probably true, but GMLP only owns 60% of one of them, and with all this new liquefaction, rates may not go as low as the Market thinks–or certainly as low as is pricing in now.
There is still a good chance that as we near the end of 2017, the dividend takes a 10-20% hit. At 28.5% yield, that’s priced in. The current coverage ratio is 1.34, and has averaged 1.23 since 2013.
Contrast that to the main Teekay companies, TGP and TOO, which have coverage ratios under 1–0.96 and 0.86.
GLNG only owns 30% of GMLP now; they don’t control it but obviously have some say in it. It totally makes sense for GLNG to buy it back now, it’s so cheap.
Notably GMLP has no future capital requirements–it can choose to accept new ships from GLNG as it wants now.
With 62.87 million shares out, the stock at $8.50 has a market cap of $534.4 million, and an EV of $1.8 billion.
Thomson Reuters shows consensus estimate of $346 million for 2015 EBITDA, and $364 million for 2016.
EPS estimates are $2.58 for 2015 and $2.82 for 2016. 8.5/2.58=PE ratio of 3x.
I WILL DO A MORE THOROUGH UPDATE ON GMLP LATER THIS MONTH
You know what the key has been to me making money in oil and gas in 2015? NOT investing in oil and gas, but in tanker stocks, refineries, energy retailers and SmartGrid stocks.
SmartGrid stocks especially are an incredible opportunity and I am looking at one company especially that looks to be my favourite for 2016. This US-listed company has over $100 million cash, no debt, and is growing at an incredible rate–not just in the US, but in Canada, Australia and Europe. It’s a global story. And the Market is just starting to recognize it. Early in the New Year, you’ll get an exclusive look at it, right here.
