John Fredriksen’s Flex LNG is being tipped to increase its share price as a combination of long-term charters and a tighter shipping market works in its favour.
Fearnley Securities praised the Oslo-listed LNG carrier owner’s recent deal to tie up three vessels on contracts totalling 24 years at $85,000 per day.
“The long-term cash flow visibility in the share has drastically improved, again,” said analysts Oystein Vaagen and Erik Gabriel Hovi.
A “supermajor” charterer believed to be Chevron replaced existing variable time-charters on two of the vessels with seven-year fixed-hire contracts.
And a “large global trading company” agreed a new 10-year fixed-rate charter on a third carrier.
Fearnleys believes these ships will have no residual risks at the end of the contracts, being 13 to 15 years old at that point, with $26m of annual Ebitda versus a newbuilding cost of $185m.
The investment bank sees short-term market headwinds due to disruption to trade flows in Europe and from the Freeport fire in Texas.
But the long-term picture suggests a tighter market.
This is being driven by high European and Asian gas demand, final investment decisions on gas projects, and replacement of older steam turbine units, the analysts said.
Refinancing drive
Speed reductions as a result of environmental regulations will also help reduce vessel supply.
Up next for Flex LNG is a balance sheet optimisation involving refinancing of its remaining seven vessels, after a similar refinancing of six other carriers last year.
This will increase liquidity by at least $100m, the shipowner has said.
Vaagen and Hovi see a low market risk for Flex LNG, with only one vessel open in 2024.
“Hence, we argue FLNG is well positioned for the upcoming refinancing process, leaving room for extraordinary distributions,” they added.
The duo have a “buy” recommendation on the stock and an increased share price target of NOK 335 ($33.63), against a price of NOK 281 in Oslo on Friday.
