I had recently discussed GasLog (GLOG, Financial) where I mentioned that GasLog Partners (GLOP, Financial) is also a good investment option for long-term investors. This article will elaborate on the factors that make GasLog Partners an interesting investment option.
As an overview, GasLog Partners is an MLP that has dropdown agreement with GasLog. As of 2Q15, GasLog Partners owned eight vessels and all the vessels are on long-term charter with BG Group. GasLog Partners has further vessel dropdown option from GasLog for vessels that have a charter term of five years or higher.
Coming to the positive factors for GasLog Partners, I believe that the following factors make the MLP an investment worth considering –
- GasLog Partners has all vessels on long-term charter with BG Group and this will ensure that the company’s cash flow in coming years is steady. Therefore, the current distribution of $1.74 per share is sustainable in the coming years. In other words, investors can enjoy a healthy distribution yield of 9.1% by considering exposure to GasLog Partners.
- GasLog Partners acquired three vessels recently from GasLog as a part of the dropdown agreement with the parent company. In the coming quarter, GasLog expects 10% increase in cash distribution due to positive impact of these vessels on revenue and EBITDA. Therefore, the distribution and distribution yield is set to increase further in the next quarter, making GasLog Partners even more attractive.
- GasLog Partners can further acquire vessels from GasLog and the latter has 12 vessels that are on contract of five years or higher. I expect more acquisitions to come as a part of the dropdown agreement and this will ensure that GasLog Partners has a good revenue, EBITDA and cash distribution growth trajectory.
- GasLog Partners has $461 million in debt, but I am not concerned about further leveraging as the MLP will be acquiring vessels with at least 5-year charter. The increase in debt can easily be serviced by stable cash flow from the vessel operation.
- GasLog Partners is also interesting because of the industry outlook. As LNG exports commence from the United States in the coming years, there will be strong demand for vessels and GasLog as well as GasLog Partners will benefit from this demand. I see more vessels acquisition from GasLog and vessel acquisition from the parent company implies more option for dropdown to GasLog Partners.
Besides these company specific factors that will boost growth and cash distribution, I must mention here that GasLog Partners has declined from YTD15 peak of $29.3 per share on May 4, 2015 to current levels of $18.7. Anything related to the oil and gas sector has corrected sharply and GasLog Partners has declined with fundamentals remaining strong.
The decline in the stock has also been due to equity dilution in June 2015. However, the growth from acquisitions and further dropdowns will more than offset this dilution and I see this correction as a buying opportunity.
From a risk perspective, I believe that geo-political factors are the biggest threat. The LNG exports from the U.S. will be primarily directed toward Asia. However, there has been increasing friction between China and the U.S. I see this as one risk factor to the overall positive story.
In conclusion, GasLog Partners is an excellent MLP to consider and I believe that the cash distribution will continue to increase over the next 3-5 years. If strong demand for vessels sustains, charter rates in future contracts will be higher and GasLog Partners can see EBITDA margin expansion and potential growth in cash distribution due to EBITDA expansion as well. Investors can therefore use the current correction to buy the MLP.
