(thanks to Xtech on the Strategic Income Investing Board)
Golar LNG Partners LP (GMLP)
Attractive Total Return with Exposure to a Niche LNG Market: Buy
Total Return Opportunity — We view GMLP as attractive based on its current yield of 6.4% and attractive niche growth opportunities. While the partnership’s yield is slightly below that of the MLP average yield of 6.5%, our estimated distribution growth of ~17% over the next 12-18 months far exceeds the MLP average of ~4%. Additionally, the partnership’s highly visible cash flows are supported by charter agreements with credit
worthy counter-parties with an average contract life of ~9 years.
Growth to $1.80 — Golar LNG LTD, GMLP’s general partner, owns nine LNG vessels
that are not currently owned by GMLP. Two of these vessels are under long-term
contracts, have been converted into FSRUs, and are designated to be sold into the partnership. We estimate these transactions alone will support distribution growth of $0.26/unit (~17%) from $1.54/unit to $1.80/unit. Further growth will depend on longterm commitments being signed for the remaining vessels at the general partner.
Fundamental Tailwinds — The fundamental back-drop for GMLP appears strong
based on our view that demand for LNG will continue to grow at a rapid pace as non-OECD nations turn to this cleaner/lower cost alternative to crude oil for generation capacity. While the spot market for LNG transportation was over supplied just last year, current market dynamics indicate a significant change. Near- to medium-term deliveries are minimal and demand has shifted higher for both transportation and FSRUs. Given recent spot market volatility, new LT contracts appear likely. This could open up opportunities for GMLP as its GP has 7 vessels working in the spot/short-term market that would be drop-down candidates should these vessels secure contracts.
Buy, TP Of $30.00 — We are initiating coverage on GMLP with a Buy/Medium Risk
(1M) rating and a target price of $30.00. Our target price is based on GMLP achieving a distribution of $1.80/unit 12 months from now and the partnership trading at a 6% yield.