Global Energy Transitions Will Drive Future Demand For LNG And Ethane Carriers

Key Takeaways

• GTT's innovative designs and digital solutions are set to enhance operational efficiency, reduce costs, and diversify revenue streams.
  
• Anticipated global LNG demand and favorable market conditions are expected to drive revenue and earnings growth for GTT.
  
• The reliance on limited shipyards and LNG market growth, along with competition and strategic challenges, could endanger future revenue and earnings stability.

Catalysts

A technology and engineering company, provides cryogenic membrane containment systems for the maritime transportation and storage of liquefied gas and liquefied natural gas (LNG) in South Korea, China, Russia, and internationally.

• GTT's strong order book of €1.9 billion with numerous LNG carriers and ethane carriers predicted to drive future revenue growth; new orders, especially from the U.S., are expected in 2025 due to favorable market conditions and ongoing projects, suggesting revenue enhancement.
  
• The innovative designs such as ultra-large ethane carriers, which reduce CO2 emissions and costs, are anticipated to improve net margins by enhancing operational efficiency and reducing material costs.
  
• GTT’s digital solutions and services expansion, especially in real-time fleet performance and voyage optimization, are positioned for high growth, likely boosting earnings through increased service-related revenue and improved operational margins.
  
• Strong growth in revenue from digital activities, which grew by 85%, is expected to continue, potentially increasing overall earnings and diversifying income streams beyond core business.
  
• Expected acceleration in LNG demand, driven by global energy transitions and the need for cleaner fossil fuels, should bolster GTT's revenue and EBITDA as more ships are needed; projections indicate a 5.7% annual growth through long-term supply gaps.

Gaztransport & Technigaz Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gaztransport & Technigaz's revenue will grow by 5.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 54.2% today to 52.2% in 3 years time.
• Analysts expect earnings to reach €388.5 million (and earnings per share of €10.61) by about April 2028, up from €347.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €441 million in earnings, and the most bearish expecting €342 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.4x on those 2028 earnings, up from 14.4x today. This future PE is greater than the current PE for the GB Oil and Gas industry at 15.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.98%, as per the Simply Wall St company report.

Gaztransport & Technigaz Future Earnings Per Share Growth

Risks

• The company's reliance on a few shipyards and lack of diversification in its manufacturing partners could pose a risk to its supply chain, affecting future revenue and earnings.
  
• An overdependence on the growth of the LNG market might be risky if global energy policies shift away from LNG towards more renewables, which could impact long-term revenue projections.
  
• The potential delay in hydrogen carrier orders could undermine growth prospects and affect future revenue streams.
  
• Significant costs and potential losses related to Elogen's restructuring and strategic shift could impact net margins and earnings.
  
• Increased competition from alternative technologies for ethane and LNG carriers could lead to reduced market share, affecting revenue growth.

Valuation

• The analysts have a consensus price target of €179.833 for Gaztransport & Technigaz based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €744.0 million, earnings will come to €388.5 million, and it would be trading on a PE ratio of 20.4x, assuming you use a discount rate of 6.0%.
• Given the current share price of €135.5, the analyst price target of €179.83 is 24.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.