Expanding Global FLNG Operations To Drive Revenue, EBITDA, And Efficiency Gains

Key Takeaways

• Expanding FLNG projects in diverse global markets aims to boost revenue and margins through strategic team enhancements and exploring new opportunities.
  
• Strategic financial maneuvers, including swapping FLNG capacities and resolving contractual issues, are poised to significantly improve liquidity and net income.
  
• Golar LNG faces risks from project-specific execution, capital expenditure impacts, client concentration, competitive pressures, and regulatory challenges, affecting financial stability and growth.

Catalysts

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

• The inclusion of two additional senior resources to the FLNG commercial team to evaluate and develop project opportunities in West Africa, South America, Middle East, and Southeast Asia suggests an effort to increase the number of FLNG projects and thereby revenue and net margins due to expansion in new and diverse markets.
  
• Golar LNG’s strategic decision to potentially swap Hilli for the more capacity-ample Mark II FLNG for the 20-year Argentina project before final investment decision (FID) indicates a move that could significantly boost annual EBITDA, influencing net income positively due to increased liquefaction capacity and efficiency.
  
• The ongoing discussions for FLNG deployment opportunities in regions abundant with stranded gas reserves, involving West Africa and South America, reveals a proactive business development approach aimed at securing contracts that would elevate long-term revenue and EBITDA through engagement in high-demand, low-supply markets.
  
• Progress on the Mark II FLNG order, with secured yard slots and delivery aimed within 2027, augments the company’s ability to more than double its operating FLNG capacity by 2030. This operational expansion directly impacts future growth in revenue and earnings by enhancing liquefaction services offered to gas resource owners.
  
• Resolving contractual disagreements with BP for Gimi's pre-COD (Commercial Operation Date) compensation, unlocking the opportunity for significantly improved refinancing terms, represents a strategic financial maneuver. This can potentially release a considerable amount of liquidity for further FLNG growth ambitions, thereby affecting the company’s net debt position favorably and ensuring a more robust capital structure to support expansive operational goals.

Assumptions

• Analysts are assuming Golar LNG's revenue will grow by 28.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 50.9% today to 0.4% in 3 years time.
• Analysts expect earnings to reach $208.1 million (and earnings per share of $1.46) by about September 2027, up from $140.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.9x on those 2027 earnings, up from 23.7x today. This future PE is greater than the current PE for the US Oil and Gas industry at 9.9x.
• Analysts expect the number of shares outstanding to decline by 1.91% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.87%, as per the Simply Wall St company report.

Risks

• The dependency on strategic projects like the one in Argentina for substantial future EBITDA growth introduces geographic and project-specific execution risks, potentially affecting revenue and EBITDA margins if there are delays or failures in project delivery.
  
• Significant investment in new FLNG projects, such as the Mark II FLNG conversions, requires substantial capital expenditure that might impact net margins if project costs overrun or financing conditions become unfavorable.
  
• Reliance on a few high-value contracts and clients, such as BP for the Gimi FLNG, introduces concentration risk, affecting revenue stability and earnings if any contract renegotiations result in less favorable terms or if disputes arise.
  
• Competitive pressures and technological advancements in the FLNG market might challenge Golar LNG's position as a leading provider, influencing the company’s ability to secure new contracts and potentially impacting revenue growth and market share.
  
• Regulatory, environmental, and approval risks associated with large-scale energy projects, like those mentioned for the Argentina project, could cause delays or increased costs, adversely affecting net debt levels and the overall financial profile by imposing limitations on project execution timelines and budget.

Valuation

• The analysts have a consensus price target of $45.5 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 $38.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $586.7 million, earnings will come to $208.1 million, and it would be trading on a PE ratio of 26.9x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $32.04, the analyst's price target of $45.5 is 29.6% 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.