Transition To Pure FLNG Will Increase Earnings Visibility

Key Takeaways

• Golar's focus on long-term FLNG contracts is expected to enhance revenue stability and increase earnings visibility.
  
• Expanding FLNG capacity and innovative financing may improve cash flow and market position.
  
• Transition to a pure FLNG company brings execution and financial risks, dependent on LNG prices and infrastructure development for future revenue and margin stability.

Catalysts

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

• Golar's transition to a pure FLNG company and focus on long-term contracts, such as the upcoming 20-year agreement in Argentina, is expected to enhance revenue stability and increase earnings visibility.
  
• The successful commissioning of the Gimi FLNG for BP offshore, which will trigger a 20-year lease, is set to contribute approximately $3 billion in EBITDA, thus bolstering future earnings.
  
• The acquisition of minority interests in FLNG Hilli increases cash flow and extends EBITDA backlog by $0.5 billion, potentially improving net margins through reduced earnings volatility and increased fixed tariff revenue.
  
• The development of the Mark II FLNG and discussions for a fourth FLNG unit indicate potential revenue growth through expanded liquefaction capacity and future contracts, enhancing Golar’s market presence.
  
• Ongoing refinancing activities for current projects aim to optimize debt structures, potentially lowering financing costs and enhancing net income over the long term.

Golar LNG Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Golar LNG's revenue will grow by 16.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 19.5% today to 35.1% in 3 years time.
• Analysts expect earnings to reach $142.9 million (and earnings per share of $1.36) by about April 2028, up from $50.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $294 million in earnings, and the most bearish expecting $-13 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 42.7x on those 2028 earnings, down from 66.1x 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 0.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.25%, as per the Simply Wall St company report.

Golar LNG Future Earnings Per Share Growth

Risks

• Golar LNG's transition from LNG shipping to a pure Floating LNG (FLNG) company involves inherent risks and uncertainties, including reliance on successful execution of FLNG contracts, which could impact future revenue streams.
  
• The company's financial performance is highly dependent on global LNG prices, as seen with tariff adjustments linked to Brent and TTF prices, creating a risk of fluctuating earnings should these prices decline.
  
• Capital expenditure requirements for ongoing and future projects such as the Mark II FLNG and potential fourth FLNG are significant, and any inflationary pressures or delays could impact net margins.
  
• While Golar LNG plans further deployments in Argentina, these are contingent on infrastructure developments like pipeline construction, which could introduce timing and execution risks affecting revenue timelines.
  
• The company's business model relies on securing long-term charters for expansion projects, and failure to obtain such contracts could significantly impact future earnings and EBITDA backlog.

Valuation

• The analysts have a consensus price target of $46.643 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 $42.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $407.5 million, earnings will come to $142.9 million, and it would be trading on a PE ratio of 42.7x, assuming you use a discount rate of 7.2%.
• Given the current share price of $32.1, the analyst price target of $46.64 is 31.2% 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.