France's Gaztransport & Technigaz SA (XPAR:GTT, Financial) is a prominent engineering company specializing in containment systems for the shipping and storage of liquefied natural gas under cryogenic conditions, all while striving to become a carbon-neutral entity.
The company provides an array of services, including engineering, consultancy, training, maintenance support and technical design. Through its exceptional expertise, dedication to innovation and strong customer relationships, the Gaztransport & Technigaz has firmly established itself as a global leader in LNG shipping.
Innovation and collaboration
Also known as GTT, the company's innovation strategy is purposefully crafted to meet the operational efficiency and safety demands of customers, aligning with international maritime regulations. To achieve this, Gaztransport & Technigaz operates its own testing laboratory and actively collaborates with engineering companies, research institutions, laboratories and universities. This collaborative approach enables it to continually advance its LNG containment technologies and explore solutions for other liquefied gases.
Expanding offerings and market presence
In addition to its core LNG focus, GTT continually expands its offerings, catering to the offshore industry, multi-gas carriers and various carrier sizes. The company is also at the forefront of capitalizing on the emerging market for LNG as a propulsion fuel. As part of its commitment to customer support, it continuously enhances its range of high-value services.
Investor interest and ESG strategy
The stock captured my attention when I saw European guru Alexander Darwall invest in the company. The chief investment officer of Devon Equity Management recently wrote in his newsletter for the European Opportunities Trust PLC (LSE:EOT, Financial):
"Gaztransport et Technigaz SA (XPAR:GTT, Financial) shares performed well after reporting excellent results. As a ‘play’ on LNG, Gaztransport et Technigaz SA (XPAR:GTT) is likely to flourish as LNG, for all the talk of renewables, is a vital and growing energy source. Many might wish it otherwise, but there is little doubt that demand for natural gas is likely to continue to increase."
ESG-focused investors, who are influential in Europe’s markets, like Gaztransport & Technigaz because of its clearly defined corporate social responsibility strategy, which rests on three main pillars:
- Self-initiated sustainability: Prioritizing safety, gender equality, talent retention and anti-corruption initiatives within the company.
- Innovation driven by environmental challenges: Focusing research and development on zero-carbon solutions in line with decarbonization strategies.
- Emissions reduction commitment: Demonstrating responsibility by significantly lowering emissions.
Four cornerstones of innovation
Growth investors, like Darwall, cite Gaztransport & Technigaz’s leadership in innovation, which can be grouped into four areas.
The first is reliability. Gaztransport & Technigaz is unwavering in its commitment to operational integrity, ensuring that its systems remain operational under all conditions. The company's technology has successfully navigated even the challenges of ice-breaking LNG carriers, attesting to its capability in extreme arctic environments.
The second area is thermal performance. The company's technology is designed to securely transport gas while minimizing losses. Research primarily targets reducing vessel operating costs and LNG boil-off rates, with a focus on materials science.
The third is competitiveness. As a technological leader, Gaztransport & Technigaz faces the competition head-on, continually improving its processes and materials to maintain its edge in the industry.
Finally, the company's research also extends to adapting existing technologies to meet the needs of emerging sectors, such as bunkering and LNG distribution using smaller carriers.
First-half results and future projections
In the first half of 2023, Gaztransport & Technigaz accomplished some significant milestones. The company made strides in the development of advanced containment technologies, particularly for LNG and liquid hydrogen transportation, electrolysis, carbon capture, ammonia compatibility and gas management.
It was also successful in securing 43 new orders within its core business, with 42 pertaining to LNG Carriers and one for a floating LNG vessel, reflecting a consistent market demand. Notably, Gaztransport & Technigaz obtained approval for the construction of new fuel liquefaction facilities with an impressive annual capacity of 40 million tons.
The addition of three new independent directors to the board enhanced its governance and strengthens the leadership team. Further affirming its growth trajectory, the company secured an order book comprising 302 energy clients with a total value of $1940 million slated for delivery, highlighting strong forward commitments.
The company's scope expanded as it received an order to design cryogenic tanks for 10 LNG-powered ultra-large container ships, and it extended its services portfolio through the signing of a technical service agreement to maintain and operate a fleet of 33 vessels.
Anticipated revenue from the existing order book amounted to $165 million. Revenue sources were diverse, including royalties from the core business, revenue generated by its Elogen business and income from service activities. Consolidated revenue amounted to $193 million, marking a substantial 23.3% increase compared to the same period in 2022.
Demonstrating financial strength, Gaztransport & Technigaz achieved a robust Ebitda of $104 million, translating to an impressive margin of 58.6%. The company's operating income reached $109 million, while the net income for the six-month period totaled $91 million. The proposed interim dividend of $2.01 per share marked a noteworthy 19.4% increase from the 2022 interim dividend, underlining the company's commitment to delivering value to shareholders.
Looking ahead, Gaztransport & Technigaz's projections indicate a positive outlook. The company's consolidated revenue, I believe, will be about $435 million, reflecting continued growth. I think consolidated Ebitda will be slightly more than $217 million, highlighting sustained operational strength. In line with its commitment to rewarding shareholders, Gaztransport & Technigaz aims to achieve a dividend payout for 2023 of at least 80% of consolidated net income, further reinforcing its shareholder-friendly approach. The company’s main direct clients are companies that are building ships for the energy industry to buy or charter.
Financial analysis
The stock is rated modestly overvalued by the GF Value Line, so it is probably not worth buying right now. However, its excellent Altman Z-Score of 13.8 demonstrates the company’s very strong financial position.
Conclusion
The stock is interesting with a bright long-term future and it is a leader in its field. Gaztransport & Technigaz is firmly on my watchlist and I will revisit it again once the valuation is more attractive.
