Liquefied Natural Gas
Written by
Liquefied Natural Gas Ltd |
Magnolia progresses |
Non-FTA approval received |
Oil & gas |
19 December 2016 |
ADR research
ADR share price performance
Business description
Next events
Analyst
Liquefied Natural Gas is a research client of Edison Investment Research Limited |
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The Magnolia project has received two positive pieces of news in the last few weeks, which helps move the process towards project sanction and possible first LNG in 2022. The Department of Energy (DoE) has authorized non-FTA exports for Magnolia’s LNG, following a decision by US Federal Energy Regulatory Commission (FERC) to deny a rehearing on the Magnolia project requested by the Sierra Club. This is a big step as it allows for exports to all LNG markets globally including Europe, China and Japan. For the moment, we leave our valuation unchanged at A$1.3/share (falls slightly on an ADR basis to US$3.8), but note these announcements pave the way to signing offtake and financing agreements and project sanction in 2017/18.
Year end |
Revenue (US$m) |
PTP* |
Operating cash flow (US$m) |
Net (debt)/ |
Capex |
6/15 |
0.0 |
(64.9) |
(52.6) |
35.3 |
(8.7) |
6/16 |
0.0 |
(86.6) |
(88.1) |
50.5 |
(0.1) |
6/17e |
0.0 |
(32.6) |
(24.9) |
25.6 |
0.0 |
6/18e |
77.8 |
45.0 |
52.7 |
66.8 |
(11.5) |
Source: Edison Investment Research, company accounts Note: Converted at 1.33/US$1. Investors should consult their tax advisor regarding the application of any domestic and foreign tax laws.
FERC reaffirms is authorization for Magnolia
On 23 November, FERC reaffirmed its decision on Magnolia, authorizing its construction and operation and rejecting an appeal by the Sierra Club. Subsequently, on 1 December the project was awarded non-FTA status, allowing exports from the project to non-FTA countries (including Japan, Korea, China and Europe – all major LNG markets). These are valuable milestones that allow the company to talk more seriously with offtake partners.
Offtake will lead to financing
We expect to be updated as new offtake partners sign definitive deals (and are encouraged by the one-year extension of the agreement with Meridian). The offtake agreement will ease the way for debt financing (being coordinated by BNP), while Liquefied Natural Gas is in discussions to re-negotiate the terms of the existing agreement with Stonepeak to provide the majority of the equity for the project from an initial 4mtpa equity commitment to a full 8mtpa project equity commitment.
Valuation: Risked DCF of US$3.8/ADR
Our valuation remains broadly unchanged after accounting for an increased share count and updated FX assumption. While it is clear that recent announcements move the project ahead, we anticipate increasing our chance of success (from current 60%) as the offtake agreements are signed and definitive steps are taken towards projects sanction. For the moment, our valuation falls slightly (1.5%) to US$3.8/ADR. We model first LNG in 2022, though this will be dependent on the timely progression of the project towards sanction in 2017/early 2018. This valuation has significant space to rise as the project is de-risked.
Exhibit 1: Financial summary
|
|
US$ 000s |
2014 |
2015 |
2016e |
2017e |
2018e |
June |
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
PROFIT & LOSS |
|||||||
Revenue |
|
|
0 |
0 |
0 |
0 |
78 |
Cost of Sales |
0 |
1 |
0 |
0 |
0 |
||
Gross Profit |
0 |
1 |
0 |
0 |
78 |
||
EBITDA |
|
|
(18) |
(65) |
(87) |
(33) |
45 |
Operating Profit (before amort. and except.) |
(18) |
(65) |
(87) |
(33) |
45 |
||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(18) |
(65) |
(87) |
(33) |
45 |
||
Net Interest |
(1) |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
(19) |
(65) |
(87) |
(33) |
45 |
||
Profit Before Tax (FRS 3) |
(19) |
(65) |
(87) |
(33) |
45 |
||
Tax |
0 |
(0) |
0 |
0 |
0 |
||
Profit After Tax (norm) |
(19) |
(65) |
(87) |
(33) |
45 |
||
Profit After Tax (FRS 3) |
(19) |
(65) |
(87) |
(33) |
45 |
||
Average Number of ADRs |
115.5 |
125.8 |
126.0 |
127.7 |
127.7 |
||
EPS - normalised |
|
(0.0) |
(0.0) |
(0.0) |
(0.0) |
0.0 |
|
EPS - normalised and fully diluted |
(0.0) |
(0.0) |
(0.0) |
(0.0) |
0.0 |
||
EPS - (IFRS) |
|
(0.0) |
(0.0) |
(0.0) |
(0.0) |
0.0 |
|
Dividend per share |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
||
Operating Margin (before GW and except.) (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
0 |
9 |
9 |
9 |
20 |
|
Intangible Assets |
0 |
0 |
0 |
0 |
1 |
||
Tangible Assets |
0 |
9 |
9 |
9 |
20 |
||
Investments |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
39 |
139 |
55 |
30 |
82 |
|
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
0 |
2 |
1 |
1 |
1 |
||
Cash |
36 |
35 |
51 |
26 |
78 |
||
Other |
2 |
102 |
3 |
3 |
3 |
||
Current Liabilities |
|
(3) |
(11) |
(3) |
(3) |
(3) |
|
Creditors |
(3) |
(11) |
(3) |
(3) |
(3) |
||
Short term borrowings |
(0) |
(0) |
(0) |
(0) |
(0) |
||
Long Term Liabilities |
|
(0) |
(0) |
(0) |
(0) |
(0) |
|
Long term borrowings |
(0) |
(0) |
(0) |
(0) |
0 |
||
Other long term liabilities |
(0) |
(0) |
(0) |
(0) |
(0) |
||
Net Assets |
|
|
36 |
137 |
61 |
36 |
100 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
(16) |
(53) |
(88) |
(25) |
53 |
|
Net Interest |
(0) |
(0) |
(0) |
(0) |
(0) |
||
Tax |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(0) |
(9) |
(0) |
0 |
(11) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
||
Financing |
53 |
154 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
|||||||
Net Cash Flow |
35 |
(1) |
15 |
(25) |
41 |
||
Opening net debt/(cash) |
(1) |
(36) |
(35) |
(51) |
(26) |
||
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
(0) |
0 |
(0) |
0 |
0 |
||
Closing net debt/(cash) |
(36) |
(35) |
(51) |
(26) |
(67) |
||
Source: Edison Investment Research, company accounts
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