Liquefied Natural Gas — Update 19 December 2016

Liquefied Natural Gas — Update 19 December 2016

Liquefied Natural Gas

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Liquefied Natural Gas Ltd

Magnolia progresses

Non-FTA approval received

Oil & gas

19 December 2016

ADR research

Price

US$1.93

Market cap

US$247m

ADR/Ord conversion ratio 4

Net cash at September 2016

A$62m/US$47m

ADRs in issue

128m

ADR Code

LNGLY US

ADR exchange

OTC

Underlying exchange

ASX

Depository

Deutsche

ADR share price performance

52-week high/low

US$3.4

US$1.4

Business description

Liquefied Natural Gas is an ASX-listed company devoted to the development of LNG export terminals in the US, Canada and other potential locations. It has traded ADRs.

Next events

FERC NTP

2017

Tolling agreements

2017

Analyst

Will Forbes

+44 (0)20 3077 5749

Liquefied Natural Gas is a research client of Edison Investment Research Limited

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*
(US$m)

Operating cash flow (US$m)

Net (debt)/
cash (US$m)

Capex
(US$m)

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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Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Liquefied Natural Gas and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
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Level 25, Aurora Place

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Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Liquefied Natural Gas and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Liquefied Natural Gas — Update 19 December 2016

Liquefied Natural Gas

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