LNG - Cheniere Energy

[petec]

Man I was thinking it had dropped under $50 the way you were talking. At $56 the price is no lower than a year ago, and only a couple bucks lower than during the summer.

 

I tend to agree with your thesis but doesn't scream cheap to me.

 

The absolute price needs to be compared with the cash flow potential of the company. Quite a lot has happened in the last year, not to mention two trains coming on early and without issues.

[ValueMaven]

Yes - totally agree w/the point above.  Market seems to be overreacting here.  Im a big big fan of current management as well.  Real operators! 

[petec]

Absolutely loving this.

 

Midpoint of the DCF guidance range for 2023 (when last of the currently FID'd trains comes on) is $9/share.

 

Even if you discount that to say $7 in case there are no marketing profits, you get 4.5x per share.

 

That's a distributable cash flow yield of 22%.

 

In the meantime every 6 months they delay FID on CC Stage 3 gives them $500m to play with. The market cap is $8.7bn so every 6 months they delay that FID, they can in theory buy in 5.7% of the company.

 

CEO bought $1m shares at $45 and you can get it for $33.

[ugadawg_98]

I own the 4-1/4% converts of 2045 from 50. Conversion is well out of the money, but I’m just holding, clipping coupons as the bond is now at 60 and thinking about adding more.

[petec]

What’s the conversion price on those?

[petec]

Brief update. Q2 uneventful. Some accounting profits were moved around (creating a beat in Q2 but likely no change for the year) but nothing meaningful happened to short or long term cash flows. The company did, however, reduce the long term share count by 15% by buying back converts. Assuming that’s the only change to long term guidance, run rate DCF once the last of the currently FID’d trains comes online in 2023 is $10.6 per share (mid-range).

 

By then, my guess is they’ll have bought more shares back so we are probably on under 5x run rate DCF.

[Foreign Tuffett]

Brief update. Q2 uneventful. Some accounting profits were moved around (creating a beat in Q2 but likely no change for the year) but nothing meaningful happened to short or long term cash flows. The company did, however, reduce the long term share count by 15% by buying back converts. Assuming that’s the only change to long term guidance, run rate DCF once the last of the currently FID’d trains comes online in 2023 is $10.6 per share (mid-range).

 

By then, my guess is they’ll have bought more shares back so we are probably on under 5x run rate DCF.

 

I don't understand how you can say Q2 was "uneventful" when LNG volumes loaded were down by 23% Y/Y. I get that all of the contracts are still in place, but how long will the counterparties bleed cash before they start to look at all available options?

 

Baupost sold off what was left of its position in Q2. Very possibly they are looking at the fundamentals of the global LNG market and seeing the same thing I am seeing (albeit they almost certainly have way more info than I do).

 

 

[petec]

Brief update. Q2 uneventful. Some accounting profits were moved around (creating a beat in Q2 but likely no change for the year) but nothing meaningful happened to short or long term cash flows. The company did, however, reduce the long term share count by 15% by buying back converts. Assuming that’s the only change to long term guidance, run rate DCF once the last of the currently FID’d trains comes online in 2023 is $10.6 per share (mid-range).

 

By then, my guess is they’ll have bought more shares back so we are probably on under 5x run rate DCF.

 

I don't understand how you can say Q2 was "uneventful" when LNG volumes loaded were down by 23% Y/Y. I get that all of the contracts are still in place, but how long will the counterparties bleed cash before they start to look at all available options?

 

Baupost sold off what was left of its position in Q2. Very possibly they are looking at the fundamentals of the global LNG market and seeing the same thing I am seeing (albeit they almost certainly have way more info than I do).

 

The quarter was uneventful in that what the market feared (customer bankruptcies or the failure of contracts to hold) did not come to pass.

 

Whether customers have any other options will be interesting. I think their only other option is bankruptcy. And I think their demand will come back when the economy does. These customers did not permanently underestimate demand and covid will impact supply for longer than it impacts demand.

 

I have no more idea why Baupost sold than I have why Icahn didn’t or why Blackstone sold CQP and Brookfield (arguably the most informed of the lot when it comes to global energy demand) bought. Couldn’t care less, either.

[petec]

Q3 is out. Guidance however is very good. They've spent the last 6 months buying in convertibles which has lowered their interest costs and reduced the long term share count by >40m. That, combined with yet another increase to the volume of LNG they can squeeze out of each train, takes the 2022 run rate DCF from $9/share to $11/share at the mid point, an increase of 22%.

 

Once SP6 is complete in 2H22, unless something whacky happens to the LNG/Henry Hub spread, they'll be making $11/share in distributable cash flow through 2040 (after that they need to recontract their assets, which will last until c.2070). The shares trade for 4.5x that number. I expect a dividend to be announced next year and an absolute firehose of a buyback if prices stay at this level.

 

Props to management yet again - both good execution and smart capital allocation with the convert buyback.