Future LPG And Ammonia Projects Will Bring New Opportunities, But Operational And Market Risks Remain

Key Takeaways

• Expanding U.S. LPG terminals and adding ammonia-capable vessels positions DorianG for increased revenues and new market opportunities.
  
• Investments in dual fuel technologies and strategic capital allocation aim to enhance operational efficiencies and optimize shareholder value.
  
• Weather disruptions, canal reliance, and OPEC+ cuts pose risks to revenue stability and margins, while demand uncertainty affects fleet investments and earnings.

Catalysts

Engages in the transportation of liquefied petroleum gas through its LPG tankers worldwide.

• Expansion projects at U.S. LPG terminals, set for completion in late 2025 and 2026, are anticipated to ease current capacity constraints and boost export volumes, potentially increasing DorianG's revenues as demand for their shipping services rises.
  
• The addition of ammonia-capable vessels in their fleet could position DorianG strategically to capture emerging market share in the green ammonia trade, thereby providing new revenue streams and supporting future earnings growth.
  
• DorianG's investment in dual fuel and scrubber technologies could enhance operational efficiencies, which may lead to improved net margins by taking advantage of cost savings on fuel and supporting sustainability initiatives.
  
• Market expectations for the VLGC shipping sector remain positive, driven by continued growth in North American LPG production and strategic positioning to benefit from increased cross-Pacific trade, which could enhance revenue and earnings.
  
• DorianG's prudent capital allocation and strong balance sheet, with plans for shareholder returns and fleet reinvestment, aim to optimize shareholder value and support sustainable earnings per share growth.

DorianG Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DorianG's revenue will decrease by -15.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 48.1% today to 32.5% in 3 years time.
• Analysts expect earnings to reach $97.6 million (and earnings per share of $2.76) by about December 2027, down from $239.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $156 million in earnings, and the most bearish expecting $79.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.5x on those 2027 earnings, up from 4.1x 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 decline by 6.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.6%, as per the Simply Wall St company report.

DorianG Future Earnings Per Share Growth

Risks

• Weather-related disruptions and ongoing terminal capacity issues could lead to volatility in freight rates and terminal fees, potentially impacting revenue stability.
  
• High terminal fees compress the export arbitrage, which may limit the potential for freight rates to capture historical norms, affecting profit margins.
  
• Heavy reliance on the Panama Canal's efficiency for VLGCs poses a risk; increased demand from LNG and container ships could disrupt transit times, impacting earnings.
  
• Uncertainty around future demand for ammonia shipping creates risk in fleet investments; delays in its trade uptake could affect earnings projections and return on investments.
  
• Middle East LPG export volumes are tied to oil output levels; ongoing OPEC+ production cuts could negatively impact throughput and revenue from that region.

Valuation

• The analysts have a consensus price target of $38.0 for DorianG 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 $42.0, and the most bearish reporting a price target of just $29.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $300.3 million, earnings will come to $97.6 million, and it would be trading on a PE ratio of 17.5x, assuming you use a discount rate of 8.6%.
• Given the current share price of $22.94, the analyst's price target of $38.0 is 39.6% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.