Golar grabs upgrade

Clarkson Capital Markets upgraded shares of John Fredriksen’s Golar LNG Partners Wednesday in anticipation of continued expansion through dropdown deals with it parent.

John Fredriksen, Frontline, winner TradeWinds Power 2012.

Dwindling cash reserves in a tanker market living up to Tor Olav Troim’s infamous “Black Death” prophecy had one of the sector’s leading names staring down the barrel of a gun. Add in the pressure of hefty debts, costly charter contracts and a weighty orderbook and the world’s largest listed tanker company looked like a recipe for disaster in the General Maritime Corp (Genmar) mould.

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Urs Dur, the director of the Clarkson group’s equity research unit, raised his rating on the Nasdaq-listed shipowner to “outperform” from “market perform” and changed lifted its price target to $36.00 from $33.00 as shares slipped 2.96% to $29.36.

In a note to clients the Manhattan-based analyst said he expects the recent $265m acquisition of the 145,000-cbm LNG carrier Golar Grand (built 2006) from Golar LNG Ltd to drive distribution growth of approximately 10% when the dust settles.

Durs admitted the infrequency of sale-and-purchase transactions in the LNG space makes it tough to put the purchase price in context but believes the level was “fair” as the vessel came with a three-year charter at a rate that appears to be above the current market average.

The analyst expects to see similar deals in the future, which could drive what he described as “significant upside” to his new estimates but noted Golar’s US-listed affiliate doesn’t currently hold anymore “obvious” dropdown candidates so another deal may be unlikely in the near-term.

If, for example, the Hamilton and Oslo-based company were to announce four more dropdowns at some point in the foreseeable future, however, Dur believes this could drive distribution by approximately 33% annually over the next three years.

“Golar has a current yield of 6.3% but has yielded as high as 5.7% and the average MLP (master limited partnership) yields [around] 6.1%,” he continued. 

“As we expect distributions to increase 10% and given the growth potential from the GP holder we believe that Golar has greater growth potential than the average MLP and, as such, a target valuation of 5.8%, a small premium to the peers is warranted and also constitutes a moderate discount to our dividend discount model of $43.00.”

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Golar LNG Partners

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