GasLog Ltd.: A View From The Perspective Of A Preferred Investor

| About: GasLog (GLOG)

Summary

When considering preferreds, I view them as a separate entity from their common cousins.

GasLog is a mid-size company that has held its own and outperformed its peer group over the past 4 years.

I view it as a survivor and a potential preferred investment at the right price.

However, I'd carefully the oil sector in general, which appears to play a major role in future performance.

For those of you unfamiliar with my preferred investment philosophy, "The Basics Underlying Investments Viewed Through the Eyes Of A Preferred Investor" will explain how and why I became a preferred investor. More important, it will provide you the information necessary to fully appreciate and understand the process I utilize to research and determine whether or not I will invest in a particular company's preferred equities. What follows is that process.

When considering the acquisition of GasLog Ltd. (NYSE:GLOG) preferred shares, it's necessary that we view that company through a different set of eyes than we would were we interested in acquiring its common shares.

Consequently, unlike its common cousins, it's necessary that we first study the offering prospectus of the preferred shares we are interested in acquiring. To accomplish this, let's visit my favorite preferred search site, Quantum Online, which I set to open to GLOG. Below is a snapshot of a slice of that page:

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A quick review informs us that GasLog is a mid-level sized company that IPO'd in 2012 at $1.6 billion, and operates and manages LNG carriers, which, at the time, included 11 ships in operation and 9 on order. This immediately brings up the question about how they were or are to be paid for.

Let's click on Find Related Securities to examine any preferreds this company has to offer:

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Here we learn that GLOG offers the preferreds GLOG-A, which were initially offered at the interest rate of 8.75%.

Now let's click on GLOG-A itself. Below is the screenshot:

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  • I like that this preferred is cumulative, meaning that in an event that payments are suspended, they accumulate and are owed to the shareholder, and will be repaid in full if and when the payments are restored. And they must be completely repaid before the common shareholder will be allowed to receive any further dividend payments. Additionally, there are probably more sanctions and restrictions placed on the company, and will remain so until the missed payments are repaid in full. As a rule, I only invest in cumulative preferreds. Although bank preferred dividends are usually secure, they are almost always non-cumulative, and consequently, I don't buy them.
  • These shares are callable at the company's option in 4/7/20 at $25.00 plus any accrued interest owed. This means you have a little under 4 years before the company can call this issue, at which time, the company must pay its par value of $25.00.
  • GasLog pays a dividend of $2.1875 per share per year, or 0.546875 per quarter, paid on 1/1, 4/1, 7/1, 10/1 of each year. Meaning, 4 times each year, on the dates specified, you will receive 0.546875 per share, which will add up to a total of $2.1875 per share payment per year.
  • At the time of their IPO, these shares were unrated by Moody's or S&P, which really doesn't concern me, but might concern a more conservative investor.
  • These shares have no stated maturity, meaning they can remain uncalled in perpetuity, which is fine with me. Pay me, pay my heirs, pay the heirs of my heirs for all I care. However, if called, it will be at their $25.00 call value plus any accrued interest owed.
  • Dividends are eligible for the preferential income tax rate of 15% or 20%. You should be aware of how these tax ramifications will affect your investment bottom line.
  • As usual, upon liquidation, preferreds rank senior to commons and junior to debt, both secured and unsecured.

However, simply knowing and understanding the preferred issues of a company in no way allows one to gauge a company's long-term health or to fully comprehend its business model. To better accomplish this, a knowledgeable investor should be able to dig down into the numbers and at least marginally understand a company's financial statements and conference calls.

Sounds reasonable, but extremely difficult for most investors, including myself. I often rely on interpretations by SA contributors who have proven more knowledgeable than myself. Unfortunately, the vast majority of their articles are written with the common shareholder's interests in mind, rather than those of the preferred shareholder - which, on occasion, might not be in alignment. Also, as I mentioned above, other SA members might view their conclusions in a different light. When this occurs, I simply try to figure out which argument sounds the most logical. Sorry, that's the best I have to offer.

Consequently, rather than attempting to digest and understand complicated financial statements, which I realize I won't be able to realistically accomplish with any degree of accuracy, I usually visit two websites to get an abbreviated, yet broad-based view of the particular company I'm considering making an investment in. They are Yahoo Finance and Finviz. I have cued each to open to the financials of GLOG.

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Above is a screenshot of GLOG's 4-year chart, which, as far as I'm concerned, is the picture of a company whose shares were already in decline prior to the decline of oil market prices, which reached its low about the same time as the price of oil hit bottom. Since then, at the beginning of this year, it has rebounded by a bit more than doubling in price - mirroring the recovery in LNG prices, which have also risen since then. Frankly, at this time, I'm concerned that the price of oil appears to be retreating from its high of around $50 per barrel to its present levels - as I write, WTI is at $42.70. Yes, I realize GLOG is involved in transporting LNG, but as history has shown, this sector appears to follow the fortunes of the oil market.

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Above is a screenshot taken from a Finviz view of GLOG's present financial highlights. The company's current market value is a reduced $107.00 billion. It lost $19.3 million on $422.10 million in sales. Over the past year, the stock price has fallen by 9.97%, yet has risen by 92.34% during this past half year. It also shows short-term debt/equity of 2.59 and a slightly reduced long-term debt/equity of 1.79.

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According to the Yahoo chart above, GLOG placed at the top of its peer group and is the only LNG carrier to remain in positive territory over the past 4 years. The peer comparisons charted above are: Dynagas LNG Partners (NYSE:DLNG), Teekay LNG Partners (NYSE:TGP), Hoegh LNG Partners (NYSE:HMLP), Golar LNG Ltd. (NASDAQ:GLNG), and StealthGas Inc. (NASDAQ:GASS).

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The final chart illustrates the 1-year price movement of the preferred issue GLOG-A we might be interested in acquiring. This is the chart of a company preferred, which has performed well over the past year except for a wonderful buying opportunity in January when just about everything appeared to be circling the drain. Since then, it has recovered nicely to its approximate par value of $25.00.

My bottom line decision is to look at charts of the past few years' performance of the company's common shares, coupled with whether or not said company is, over time, prospering or losing market value. Ultimately, I have to decide how safe this company is from an existential standpoint rather than how well its share price will perform over the next quarter or the following year.

Ultimately, I must decide whether or not I believe in the long-term survivability of GLOG, which I view as likely considering it past 4 years' performance history. Additionally, the good news is that the LNG market appears to be solid and on the rise, which bodes well for this sector. Of course the oil market in general is fragile, and if past is prologue, it greatly affects the LNG market and bears close monitoring. Should the price of oil once again begin to test its lows, I see no reason why GLOG-A might not re-visit the lows of the beginning of the year, which I termed a wonderful buying opportunity. Time will tell. During which time I intend to wait and watch, doing little more.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.