Top Idea For 2016: Golar LNG Partners

Summary

  • I am submitting Golar LNG Partners (GMLP) as my ‘Top-Idea for 2016’ for participation in Seeking Alpha’s latest contest.
  • GMLP has plunged by more than 75% YTD, while the underlying contracts have not changed, mostly as a result of the sector collapse and fears of distribution cuts.
  • The following report consists of three parts: an overview of the MLP space, background and current examination of GMLP itself, and scenario discussion with overview of significant risk factors.
  • Based on a strong conservative cash flow analysis, the blended worst-case scenario results in discounted present value of $5.80/unit, and the baseline scenario results in present value of $10.12/unit.
  • My personal price target is $17.50, which I believe is attainable (including distributions) by the end of 2016 based on market stabilization.

Overview

I am submitting Golar LNG Partners (NASDAQ:NASDAQ:GMLP) as my 'Top-Idea for 2016' for participation in Seeking Alpha's latest contest. Seeking Alpha is looking for compelling opportunities to exploit market mispricing and will reward both the thesis itself and also the full-year performance (both peak and total). Although there are a few other ideas that might offer higher total returns, when adjusting for downside risks, GMLP is far and away my favorite idea for 2016.

The following report will consist of three parts, each of which can be read separately, but will come together to make the case for an investment in GMLP. First, this report contains an overview of the MLP space, from boom to the current bust, and how the shipping sector has played into these events via massive LP issuances. Second, the report will cover the background and current make-up of GMLP itself including vessel valuation estimates and an examination of current cash flow. Third, we will examine the potential for various outcomes and discuss significant risk factors, both company-specific and industry-wide.

About Golar LNG Partners

Golar LNG Partners LP is a limited partnership managed by publicly-traded general partner Golar LNG Ltd (NASDAQ:GLNG). GMLP is involved in two primary businesses- LNG transportation (4 vessels, 2000-2006 built, 100% on contract through the end of 2017), and floating storage and regasification ("FSRU" 6 units, all with significant contracts, 2018-2025). GMLP was originally structured to serve as an additional funding vehicle for parent GLNG via dropdown vessels with long-term contracts.

GLNG owns 30.4% of the total outstanding units, and also owns incentive distribution rights (IDRs) which currently entitle them to 50% of all distribution boosts beyond the current rate. These incentives are designed to align GLNG with GMLP unitholders in a pursuit of increasing distributions per share. Golar Partners currently has 62.87M units outstanding for a current

This article was written by

J Mintzmyer profile picture
19.23K Followers
The ultimate shipping and logistics platform.
BS in Economics, MA in Public Policy (International Economics), pursuing Doctoral in Public Policy (Intl Relations). J is an established independent research provider and hedge fund consultant in the maritime shipping sector.

Mintzmyer founded Value Investor's Edge, a top-ranked deep value research service in May 2015, with the goal of establishing a top-tier community of deep value investors and activists. Value Investor's Edge subscribers leverage exclusive in-depth analytic reports and community investment experience to discover disconnects in global shipping and a variety of other beaten down sectors.

As part of directing Value Investor's Edge, Mintzmyer works with a team of five analysts and data technicians to deliver quality research and analytics to over 500 members. He has interviewed numerous management teams at public maritime firms, and has worked with a multitude of investors. Mintzmyer's exclusive analysis has received frequent 'Top Idea,' 'Must Read,' and 'Small Cap Insight' awards at Seeking Alpha and he is commonly cited in industry news such as TradeWinds and Splash 24/7.

Pursuing a Doctorate in Public Policy (Intl Relations) from Harvard University. M.A. in Public Policy, with focus on International Security & Economic Policy from the University of Maryland. Distinguished Graduate of the United States Air Force Academy with a B.S. in Economics. Extensive background in financial analysis, equity research, accounting, portfolio management, and customized asset allocation through nearly a decade of formalized education, personal studies, and practical experience. Avid reader of business/investments and biographies.


Legal Disclaimer: Any related contributions to Seeking Alpha, or elsewhere on the web, are to be construed as personal opinion only and do NOT constitute investment advice. An investor should always conduct personal due diligence before initiating a position. Provided articles and comments should NEVER be construed as official business recommendations. In efforts to keep full transparency, related positions will be disclosed at the end of each article to the maximum extent practicable. The majority of trades are reported live on Twitter, but this cannot be guaranteed due to technical constraints.

My premium service is a research and opinion subscription. No personalized investment advice will ever be given. I am not registered as an investment adviser, nor do I have any plans to pursue this path. No statements should be construed as anything but opinion, and the liability of all investment decisions reside with the individual. Although I do my utmost to procure high quality information, investors should always do their own due diligence and fact check all research prior to making any investment decisions. Any direct engagements with readers should always be viewed as hypothetical examples or simple exchanges of opinion as nothing is ever classified as “advice” in any sense of the word.

Disclosure: I am/we are long GMLP. 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.

Additional disclosure: I am short GMLP (covered) calls for Feb16 ($12.50) and May16 ($15).

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