US investment bank Jefferies expects US-listed Dynagas LNG Partners to be able to cut debt as planned due to its strong contract cover.
In the latest of a series of company updates following meetings with top executives, analysts Randy Giveans, Christopher Robertson and Chadd Tribo said the LNG carrier owner is poised to achieve its medium-term goal of deleveraging its balance sheet at a steady pace in the coming years.
Dynagas Partners management expects the fleet of six LNG carriers — five of which are ice-classed — to remain near 100% utilisation in the coming quarters.
The total charter backlog is around $1.18bn and the fleet is 100% contracted until the third quarter of next year. Only one charter expires before 2026.
The Dynagas spin-off has "a unique value proposition of being one of the most stable LNG owners in the peer group with 100% utilisation in 2020, 92% utilisation in 2021, and an average charter length of circa eight years," according to Jefferies.
This high level of cover is attributed to the ice-class capability of the ships.
Counter-parties include Russia's Gazprom and Yamal LNG, as well as Norway's Equinor.
No spot risk
Dynagas has no operational exposure to spot market volatility, which ensures highly visible and predictable cash flows, the analysts said.
"Furthermore, the partnership has no major debt maturities until 2024 and expects to amortise $12m in debt per quarter through 2023," they added.
The partnership ended the second quarter with $63.3m in cash.
The net debt-to-capitalisation ratio was 60% at the same point, but management expects the debt ratio to improve at a steady pace as the company pays off borrowings at one-and-a-half times the rate of its vessels' book depreciation.
Dynagas Partners is not paying dividends, but is instead focused on creating shareholder value through deleveraging the balance sheet, Jefferies said.
No fleet changes imminent
There are no near-term plans to acquire newbuildings or secondhand vessels, bosses told Jefferies.
But the owner will pursue regular ship renewal efforts in the future, executives added.
Jefferies has a hold rating on the shares and a target price of $3, against a close of $2.50 on Wednesday in New York.
The investment bank said north-east Asian LNG prices have recovered to more than $5 per MMBtu, and the forward curve is topping $5.40 per MMbtu for December.
"End-user demand is picking up and more buyers than expected came into the market heading into the winter LNG stock-building season," the analysts said.
"We believe the LNG shipping market will improve in 2021, relative to a weak 2020, as global demand for LNG recovers post-Covid, especially in the north-east Asian markets of Japan, South Korea and China."
