Edison Issues ADR Outlook on Liquefied Natural Gas Ltd (LNGLY)

Liquefied Natural Gas Ltd (LNGL) is a developer of LNG liquefaction facilities and holds patent-protected technology that promises lower-cost, highly efficient LNG across many global markets. The company is finalizing offtake and awaiting a final DoE non-FTA export order to proceed before it can reach financial close at the Magnolia project. Binding EPC contracts mean that costs of development should be contained, while production (if sanctioned soon) could start up in 2022 as the global LNG markets tighten from the current glut. We believe uncertainty over the projects is a major reason behind the current share price, which has the potential to re-rate strongly if and when the project(s) are sanctioned. Our current risked DCF approach values LNGL at A1.3$/share (US$3.9/ADR), but this could grow very materially.

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If/when MLNG starts up, it should produce material cash flows that could push the shares to levels approaching or exceeding A$5/share (US$15/ADR), based on DCF and peer multiples analysis. Our current valuation revolves around an estimation of the risks to project sanction, which the current share price implies are substantial. We risk our DCF-derived valuation to arrive at a current valuation estimate of A$1.3/share (US$3.9/ADR), but if milestones towards project sanction are reached, it could drive shares much higher. We note that a FERC NTP could be issued before year-end, enabling the company to more aggressively pursue the other milestones (financing, tolling agreements).  

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Will Forbes - Edison Investment Research

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Ian McLelland - Edison Investment Research

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SOURCE Edison Investment Research