GasLog (GLOG, Financial), which owns, operates, and manages vessels in the liquefied natural gas market globally, has witnessed a strong year in terms of revenue and EBITDA growth. During the year, the company also launched a successful IPO of GasLog Partners (GLOP, Financial). This article discusses the company’s outlook for 2015 considering the latest announcement by the company on further LNG vessels acquisition.
On December 22, 2014, GasLog announced that it has entered into an agreement with Methane Services, an affiliate of BG Group, to acquire two modern tri-fuel diesel electric LNG carriers for a cost of $460 million.
The two vessels will be chartered back to BG for periods of 9 and 11 years respectively. There is a further option by the charterer to extend the term of the time charter for each vessel by either three or five years.
The firm period of 9 and 11 years adds $580 million to the company’s revenue visibility and takes the total order backlog for GasLog to $3.3 billion. The current order backlog ensures strong growth for the company in the coming years. The two fleet additions is also likely to add $46 million in annual EBITDA upon completion of the acquisition.
GasLog expects the transaction to close in the first quarter of 2015. The charter commencement is expected to take place at the same time. Therefore, in 2015, the impact on revenue and EBITDA will come from the two new vessels and will provide further momentum to the company’s already robust growth trajectory.
It is also important to mention that GasLog has already obtained commitments from DNB Bank ASA, for a $325 million secured credit facility and a $135 million subordinated two-year loan facility. Therefore, the acquisition is fully funded and with long-term charters, financing was never a big issue.
Another interesting aspect of the acquisition is the potential to drop-down the two vessels to GasLog Partners in the foreseeable future. With both the vessels having a charter period of over 5 years, it is likely that one or both form a part of the GasLog Partners fleet.
From this perspective, I also expect that GasLog Partners distribution yield will increase in the coming year. At a current price of $24.85, GasLog Partners offers a distribution of $1.5 per share and a distribution yield of 5.6%. If the dropdown happens in the coming quarters, I expect the distribution for GasLog Partners to increase in 2015 with these two vessels having the potential to contribute $46 million to EBITDA on an annual basis.
Coming back to GasLog, besides the acquisition of the above mentioned carriers, GasLog also has the delivery of one new fleet in 2015. Therefore, the total addition of 3 LNG vessels will keep the revenue and EBITDA momentum strong in 2015.
At a current price of $19.9, GasLog is trading at an attractive PEG (5-year forward) of 0.73 and this indicates that the stock is undervalued at current levels and there is upside potential in the coming year. Further, GasLog also offers a dividend payout of $0.56 per share, which translates into a dividend yield of 3.2%. The dividend payout for GasLog is also sustainable and I believe that robust dividend is another reason to consider GasLog apart from the strong growth trajectory and undervaluation.
In conclusion, investors can consider GasLog for 2015 as well as for 2016. The strong growth momentum for the stock will continue and will provide strong returns to shareholders.
