In the battle to win the hearts, minds and dollars of energy
users, natural gas has been putting up a pretty good fight
against the traditional heavyweight champion, oil.
Natural gas has gained popularity as an energy source for
heating, cooking, generating electricity and fueling automotive
fleets, partly because it is usually cheaper and cleaner than
oil, and cleaner than coal.
With rising demand for natural gas -- and plentiful supply
amid the U.S. drilling boom -- comes demand for ships to
transport liquefied natural gas (
). One of the beneficiaries isGasLog (
), which owns, operates and manages LNG tankers.
Favorable energy and shipping market trends have helped it run
off four straight quarters of double-digit revenue growth. And
GasLog stock has risen 56% so far this year.
'Up Day' In Ukraine Crisis
GasLog vaulted more than 7% in the stock market Monday as
lifted on news that Russia's Gazprom curbed natural gas piped to
Ukraine in a debt dispute. The flap led to worries about future
natural gas supply for Europe from within the continent.
GasLog delivers LNG across oceans. It has a fleet of 23 LNG
carriers, including three it is in the process of buying from BG
Group. Fourteen ships are on the water and nine are due to be
delivered over the next three years to help meet the world's
demand for fuel.
Modern drilling methods, such as hydraulic fracturing coupled
with horizontal drilling, get natural gas out of the ground
efficiently. They spurred the U.S. energy production boom and
drove prices sharply down in 2008. After a 2012 dip deeper,
natural gas prices have been largely on the rise again.
Amid a boom in LNG production, GasLog is expected to deliver
annual earnings per share growth of 40% this year and 52% in
2015, according to the consensus of analysts polled by Thomson
"With the growing number of liquefaction and re-gasification
facilities, we believe that demand for seaborne cargoes will
remain strong, while the supply of vessels should be kept in
check by high barriers to entry," Christian Wetherbee, analyst at
Citigroup, noted in a report this month re-initiating coverage on
GasLog with a buy rating.
Wetherbee also cited "newly developed trade lanes," which he
says should have a multiplier effect on demand and shipping
"We believe that rates should accelerate, particularly in 2015
when global liquefaction projects come on line," he said.
Short-term rates charged by LNG carriers fell in the first
quarter with more ships on the water. That didn't impact GasLog
much, as it usually signs long-term contracts that guard it from
Under long-term deals, companies that need to ship LNG will
typically commit to a tanker for several years. Because GasLog
has established itself as a pure-play LNG shipper, rather than
deliver different types of products, it has been successful in
winning a large number of long-term contracts, analysts say.
It "offers exposure to one of the most attractive segments of
the shipping industry from a long-term supply-demand
perspective," noted JPMorgan analyst Nishant Mani.
Other shippers that transport LNG includeGolar LNG (
) andTeekay LNG Partners (
Although Golar LNG has had spotty financial performance of
late, with five straight quarters of lower sales, its stock
recently set a record high. Teekay LNG is trading near all-time
highs though it hasn't produced a quarter with a double-digit
revenue gain in years and has grown EPS by double-digit
percentages just once in the past five quarters.
GasLog has made a better go of it. In the first quarter it
posted earnings of 13 cents a share, up from 5 cents the prior
year but 3 cents below consensus estimates.
The miss was mainly due to higher-than-expected costs, CEO
Paul Wogan said in a statement.
"We carried out some major scheduled maintenance during the
quarter on a number of vessels. This resulted in
higher-than-average maintenance costs," he said.
First-quarter revenue gained 162% to $57.1 million, which like
EPS came in short of analyst views.
To help ease the cost of its rapid fleet expansion, GasLog
last month spun offGasLog Partners (
), a master limited partnership (MLP) created to buy new vessels.
From an IPO price of 21 in May, the MLP's stock has risen
Dropping Down To GLOP
The spin-off will own and run three GasLog LNG tankers and has
the right to buy more. The process of selling assets to an MLP is
known in the industry as "dropping down."
"We believe that GasLog has up to nine more LNG tankers in its
fleet that could attractively be sold into the MLP," noted Urs
Dur, analyst at Clarkson Capital Markets. "As ships are dropped
to the MLP, we would not be surprised to see GasLog order more
ships for delivery in 2017-2018 to meet the forecast shortage of
supply that may be commencing during that period."
Morgan Stanley analyst Fotis Giannakoulis recently initiated
coverage on GasLog Partners with an overweight rating, calling it
"the fastest-growing shipping MLP globally. It has a long
pipeline of drop-down candidates and is expected to grow its
dividend by over 50% within the next two to three years."