Pareto Securities is expecting major growth from John Fredriksen’s Flex LNG in an industry that will require over 100 new vessels during the next five years.
Analysts Eirik Haavaldsen and Oystein Dalby today launched coverage of Oslo-listed Flex with a buy rating, suggesting the company had yet to experience the typical premium associated with Fredriksen’s public companies.
“The four-ship company is small today, but with Fredriksen-backing and market-momentum over the next 12-18 months we expect heavy growth ahead,” the pair wrote in an introductory report.
“LNG spot rates are slowly recovering from historical low levels, and a return towards 2011 – 2014 averages could imply a doubling of the current share price – even without any further accretive activity.
“Fredriksen has recently shown why his tanker and bulker companies command significant premiums to both peers and steel values – and we expect FLNG to start benefiting from this as well.”
The analysts placed a NOK 17 per share target price on Flex, which they say is a discount to the typical “up-cycle” premium that Fredriksen companies enjoy when cycles are starting.
Haavaldsen and Dalby say the LNG carrier market has been in a constant downward spiral since the last boom ended in 2013 but they are now seeing signs of improvement.
“As global LNG demand grows from 260m to 400m tons over an eight year period – and further liquefaction capacity will be needed to avoid surging prices – we believe the market can need up to 105 additional LNG carriers by 2022,” the analysts predicted.
“At the same time, we see booming FSRU demand, and believe the higher barriers-to-entry than what some suggest will continue to ensure solid returns for the established players.”
