Danske Bank has initiated coverage of John Fredriksen’s Flex LNG with a buy rating amid expectations of growth, dividends and rising profitability.
Analyst Anders Karlsen placed a NOK 17.5 target price on the Oslo-listed company.
“With a fleet of modern LNG carriers and a growing presence in the LNG market, Flex LNG is placed to benefit from recent market improvements,” he said.
“With expanding global LNG supply feeding demand from Asian economies, led by China, we see demand for LNG shipping outpacing vessel supply and expect rates to improve.”
Flex has four modern vessels on the water and a further quartet set for delivery in 2019 and 2020.
Fredriksen’s Seatankers also has additional tonnage on order, one or more of which could at some point be offered to Flex, Karlsen explains.
He says Flex is likely to employ its ships on a mix of short and medium-term deals in combination with spot trading, with the high specification assets likely to produce market-leading earnings.
“Rates for LNG carriers have strengthened considerably during 2018 and we expect market rates to improve further over the coming 12-24 months as vessel demand grows at a higher pace than the LNG fleet,” he said.
'Simple people, simple strategy'
Karlsen projects Flex will book a profit of $1.1m in 2018, rising to $54.6m in 2019 and $108m in 2020.
With the bottom line rising, Karlsen expects the dividend payment will arrive in the third quarter of next year, with the long-term expectation 50% of net income will be distributed to investors.
Oystein M Kalleklev, chief executive of Flex LNG, told a Capital Link conference in London this week “we are simple people - we have a simply strategy”.
“We are now $650m give or take on market cap,” he added. “That is not really a big size when our shareholding is only 52% so growing the company to $1bn is the short-term goal.
“Then we will do more after that, but we are not going to do stupid things.
"We are only going to buy vessels when we think they are cheap and charter them our long-term when we think rates are high.
“That is how we have been building shipping companies in our group for the last 50 years or so.”
