Global LNG Expansion Will Drive Demand While Raising Operational Risks

Key Takeaways

• Fleet modernization and efficiency upgrades, plus digitalization, are leading to higher charter premiums and reduced costs, positioning the company well for regulatory shifts.
  
• Stable long-term contracts with reliable clients and favorable LNG market dynamics are enhancing earnings visibility and supporting strong margins.
  
• Persistent vessel oversupply, weak charter rates, and heightened re-contracting risk threaten Cool's earnings stability and margin flexibility, especially amid uncertain demand and regulatory or financing challenges.

Catalysts

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

• Anticipated significant growth in global LNG supply through 2026 and 2028, driven by new large-scale projects in the US and other markets, is likely to increase demand for modern LNG carriers, supporting a recovery in fleet utilization and providing a tailwind for Cool's future revenue growth.
  
• The ongoing retirement and idling of older, less efficient steam turbine vessels is accelerating, which is expected to tighten shipping market supply, favoring Cool's younger, upgraded fleet and potentially improving net margins as market balance returns.
  
• The company's ongoing investments in vessel upgrades (e.g., LNG-E subcoolers) and digitalization are yielding measurable premiums on charter rates and reducing operating costs, positioning Cool to benefit from industry-wide emissions regulations and to lift EBITDA and net margins.
  
• Cool's substantial long-term charter backlog with blue-chip, investment-grade clients underpins stable cash flows and reduces business risk, enhancing earnings visibility and supporting sustained operating margins, even in challenging spot rate environments.
  
• The global push for energy security and supply-chain realignments, particularly increased eastbound LNG shipments and longer-haul trade flows, are expected to expand the addressable market for Cool's logistics solutions, benefiting both topline revenue and fleet utilization rates over time.

Cool Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cool's revenue will decrease by 0.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 17.5% today to 16.8% in 3 years time.
• Analysts expect earnings to reach $53.2 million (and earnings per share of $1.09) by about September 2028, down from $56.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $75.5 million in earnings, and the most bearish expecting $37 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, up from 7.2x today. This future PE is greater than the current PE for the NO Oil and Gas industry at 8.4x.
• 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

• Prolonged weakness in spot and short-term charter rates amid a glut of newbuild vessels and high levels of idle older tonnage continues to drag down average TCE (time charter equivalent) rates, pressuring Cool's revenue and net earnings despite a partial buffer from the existing backlog.
  
• The oversupply of modern LNG carriers and persistent low spot/1-year rates, combined with market competition from sublets and idled steam turbine vessels, increases the risk of vessel underutilization and ongoing difficulty securing attractive long-term fixtures, likely reducing future revenue visibility and compressing operating margins.
  
• As the company's existing long-term charters expire and more vessels come off contract, Cool faces heightened re-contracting risk in a shallow long-term charter market, exposing it to volatile and often unsatisfactory spot rates, potentially leading to materially lower average vessel earnings and decreased earnings stability.
  
• The evolving demand balance between Europe and Asia remains highly uncertain and subject to macroeconomic and geopolitical shocks; a delayed shift in trade flows or sustained weak ton-mile demand could undermine Cool's forward utilization rates, further pressuring long-term revenue growth.
  
• While recent drydockings and vessel upgrades have temporarily improved operating efficiency, the company's high capital expenditure on upgrades and debt load exposure (notwithstanding active hedging) may constrain its flexibility and compress net margins over time if weak rate environments persist or if regulatory/ESG headwinds increase financing costs or asset obsolescence risk.

Valuation

• The analysts have a consensus price target of NOK93.743 for Cool 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 NOK114.5, and the most bearish reporting a price target of just NOK79.66.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $317.0 million, earnings will come to $53.2 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 13.0%.
  
• Given the current share price of NOK77.1, the analyst price target of NOK93.74 is 17.8% 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.