An equity analyst at Dahlman Rose is urging investors to grab shares of Golar LNG Limited (Golar) on a bet the stock is poised to pop.
Omar Nokta says the Nasdaq-listed gas specialist is could cash in on an uptick in the spot market and believes the sale of an FSRU to affiliate Golar LNG Partners may be imminent.
“As we head into the seasonally-strong summer months, we expect spot and contract activity to improve, and Golar appears well-positioned to benefit,” he told clients, noting day rates have risen from $105,000 to $120,000 over the past four weeks.
In addition, the analyst says the dropdown of Golar’s 126,360-cbm Khannur (built 1977), which is undergoing conversion at Singapore’s Jurong Shipyard, is on track to happen this quarter in a deal what would leave the company with $200m to play with.
“Golar LNG Partners filed a shelf registration last week for up to $800m,” Nokta explained. “We believe this is a precursor to an equity offering later this quarter in which proceeds will be used to fund the acquisition of the FSRU Khannur from Golar for roughly $400m.
“Golar has around $200m of debt on the unit, meaning Golar will have free cash flow of $200m or so following the dropdown. We would expect Golar to use a portion of the proceeds to pay a special dividend. Assuming half of the net proceeds are paid out, investors could see a special dividend of $1.25 per share.”
Shares of Golar climbed by nearly 1% in early trading before hitting $34.51, well below Nokta’s $50.00 price target- which assumes more modern assets will be acquired by its Times Square-quoted affiliate over the next three years.
