Mark II FLNG Deployment Will Reshape Future Operations

Key Takeaways

• Expansion of FLNG fleet promises significant revenue and earnings growth, with potential to triple EBITDA and impact long-term financial performance.
  
• Strategic refinancing could release liquidity for growth initiatives, affecting future capital structure and enhancing shareholder returns.
  
• Significant capital investment in FLNG projects and high exposure to commodity prices may increase financial risk, affecting margins, net income, and revenue stability.

Catalysts

Designs, converts, owns, and operates marine infrastructure for the liquefaction of natural gas.

• The company's order for a new Mark II FLNG unit, which will increase liquefaction capacity by 70% and potentially double EBITDA by delivery in Q4 2027, is a significant catalyst for future revenue and earnings growth.
  
• Progress in commissioning the FLNG Gimi, expected to begin generating full cash flow from its 20-year contract in Q2 next year, is set to positively impact future earnings through increased cash flow generation.
  
• The upcoming redeployment of the FLNG Hilli under a new 20-year charter in Argentina starting in 2027 will enhance future revenue, with an estimated annual EBITDA contribution of $300 million before commodity exposure.
  
• With an option for a second Mark II FLNG to be delivered by 2028, Golar plans to expand its FLNG fleet, offering the potential to triple EBITDA generation, significantly impacting long-term earnings.
  
• Discussions surrounding refinancing existing assets like the Gimi, along with potential new financing for the Mark II, could release significant liquidity to fuel further FLNG growth, impacting future capital structure and shareholder returns.

Golar LNG Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Golar LNG's revenue will grow by 25.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.9% today to 20.5% in 3 years time.
• Analysts expect earnings to reach $111.3 million (and earnings per share of $1.06) by about December 2027, up from $13.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $177.9 million in earnings, and the most bearish expecting $71 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 54.3x on those 2027 earnings, down from 326.3x today. This future PE is greater than the current PE for the US Oil and Gas industry at 10.9x.
• Analysts expect the number of shares outstanding to grow by 0.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.61%, as per the Simply Wall St company report.

Golar LNG Future Earnings Per Share Growth

Risks

• Significant capital investment required for FLNG projects, including the new Mark II unit, may increase financial risk and affect net margins if cash flows do not materialize as projected.
  
• High exposure to commodity prices, such as Brent and TTF, can lead to volatility in earnings and may negatively impact revenue stability and net income.
  
• Potential financial impact from geopolitical and operational risks in regions like Argentina and Nigeria, which may delay project development or revenue realization.
  
• Increased net debt and future financing needs due to ongoing and potential new FLNG projects, which could affect financial flexibility and may pressure earnings if financing costs rise.
  
• Risks related to delays or complications in securing new charters and executing projects, potentially affecting future revenue streams and projected EBITDA growth.

Valuation

• The analysts have a consensus price target of $46.21 for Golar LNG based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $56.0, and the most bearish reporting a price target of just $41.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $542.4 million, earnings will come to $111.3 million, and it would be trading on a PE ratio of 54.3x, assuming you use a discount rate of 7.6%.
• Given the current share price of $42.2, the analyst's price target of $46.21 is 8.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.