Modern LNG Shipping Will Gain From Global Energy Diversification

Key Takeaways

• Tightening LNG shipping supply and shifting charterer preferences position CoolCo to reset expiring contracts at premium rates, boosting revenue and margin potential.
  
• Vessel upgrades, strong balance sheet, and regulatory trends uniquely enable CoolCo to command technology premiums and pursue strategic expansion into adjacent markets.
  
• Structural headwinds from energy transition, asset obsolescence, regulatory pressure, fleet oversupply, and shifting investment trends threaten Cool's future profitability, growth prospects, and revenue stability.

Catalysts

Acquires, owns, operates, and charters liquefied natural gas carriers (LNGCs).

• While analyst consensus highlights CoolCo's $1 billion charter backlog as a foundation, they understate the scope for significant rate upside; with spot and long-term charter markets already showing signs of tightening, CoolCo is uniquely positioned to reset expiring contracts at much higher rates as supply-demand dynamics rapidly improve, boosting revenue and net margins well above current run-rate forecasts.
  
• Analyst consensus calls for a 17% ton-mile growth in 2026, but accelerating LNG project final investment decisions and geopolitical pressures for energy security are triggering a much faster surge in new trade routes, which could push actual ton-mile growth and fleet utilization far higher, creating substantial earnings and operating leverage.
  
• The mass scrapping and idling of 20% or more of the global steam turbine fleet is structurally tightening LNG shipping supply faster than newbuilds can come online, potentially triggering a multi-year bull market for modern, fuel-efficient ships like CoolCo's-driving super-normal day rates and unprecedented cash flow growth.
  
• CoolCo's aggressive vessel upgrade and fleet renewal program is uniquely timed to capture the inflection point in charterer preferences for low-emission, high-efficiency LNG carriers, enabling CoolCo to command technology premiums, win long-term charters with top-tier customers, and expand net margins significantly as regulatory pressure accelerates.
  
• The company's fortress balance sheet, with $226 million in liquidity and proactive debt hedging, gives it unrivaled firepower to acquire distressed, high-quality tonnage or enter accretive adjacent markets such as floating storage regasification units, setting the stage for outsized earnings growth and strategic market share gains as the LNG shipping cycle enters a secular upturn.

Cool Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Cool compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Cool's revenue will grow by 1.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 17.5% today to 22.5% in 3 years time.
• The bullish analysts expect earnings to reach $76.0 million (and earnings per share of $1.44) by about September 2028, up from $56.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, up from 7.1x today. This future PE is greater than the current PE for the NO Oil and Gas industry at 8.3x.
• Analysts expect the number of shares outstanding to decline by 1.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.99%, as per the Simply Wall St company report.

Cool Future Earnings Per Share Growth

Risks

• The accelerating global transition to renewable energy and the potential for decarbonization policy put Cool at risk of declining long-term LNG demand, which may structurally challenge revenue growth and impair the value of its assets in the years ahead.
  
• Aging assets and the need for continued drydocking and upgrades, coupled with references to costly vessel maintenance and a reliance on efficiency improvements, signal rising operating expenses that could weigh on net margins and erode future profitability.
  
• High levels of vessel idling and spot rate weakness, exacerbated by fleet oversupply and sublet competition, suggest persistent volatility and downward pressure on earnings, especially as more vessels come off higher-rate charters in the near term.
  
• Increasing regulatory and public scrutiny around emissions, combined with possible carbon taxes or new environmental regulations, could materially raise operating costs and reduce the competitiveness of Cool's fleet, negatively impacting net margins and future earnings.
  
• Industry-wide reductions in long-term LNG investment and capital allocation pressures from ESG-focused investors can limit Cool's growth opportunities, increase its cost of capital, and threaten future revenue stability as financing and demand become more constrained.

Valuation

• The assumed bullish price target for Cool is NOK114.5, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Cool's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK114.5, and the most bearish reporting a price target of just NOK79.66.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $337.3 million, earnings will come to $76.0 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 13.0%.
• Given the current share price of NOK75.7, the bullish analyst price target of NOK114.5 is 33.9% 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.