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Hoegh LNG Partners: Loading Up For Acquisitions Amid Gas Surge

Oct. 23, 2019 8:00 AM ETHöegh LNG Partners LP (HMLP)66 Comments


  • Despite recent weak price action, HMLP has seen stable distributable cash flow (DCF) generation from its high margin, long-term project assets.
  • HMLP has solid track record on distributions and has room to grow before reaching the highest IDR tier to the GP (Oslo: HLNG).
  • A proactive position on maturing debt and ample balance sheet capacity has positioned the company to fund another FSRU Dropdown.
  • Multiple valuation methods point to a $25/share price target, implying a potential upside of 50% from present share price in addition to quarterly dividends currently yielding 11%.

Summary of Industry

In recent years, Liquefied Natural Gas ("LNG") has become a more prominent player in the global energy economy. Where previously there was a geographical barrier between the gas demand centers, found in Europe and Asia Pacific, and the large gas fields, typically found in parts of Russia, Qatar, Australia, and, more recently, the United States, there is now a link formed via LNG. The process consists of a high-powered “liquefaction” stage to chill the gas to cryogenic temperatures for the purpose of shipping the liquid volumes on a carrier to a coastal receiving terminal. Upon reaching its maritime destination, the liquid gas then goes through a regasification process which returns the liquid to its original state at which point the volumes are injected into a local pipeline for further network distribution to the final point of demand - typically industrial facilities or large-scale power generation stations.

Source: HMLP 2018 Annual Report

Most regasification terminals are established on permanent onshore structures in regions that expect to have a baseload of LNG demand for decades to come. These terminals are customarily owned by the local utility or national oil & gas company. Other terminals consist of a floating storage and regasification unit (FSRU), whereby most of the infrastructure is embedded within the offshore FSRU, which allows for a more expedient construction cycle and greater flexibility in repositioning the terminal according to prevailing market conditions. In many cases, the floating receiving terminal is a lower cost solution for newly established importers. FSRUs are also chartered as leases rather than purchased with capital investment and thus present a sound solution for credit-limited project developers. This method of regasification is more prominent in areas of developing economies where the political risk of a permanent asset is viewed to be too high, regions that are geographically unable to route a main pipeline, or locations that exhibit

This article was written by

Eric Robken covers value and high income stocks in the energy shipping sector with an emphasis on LNG/LPG.  With degrees in Mechanical Engineering and MBA-Energy Finance, his 15-year career has centered around natural gas projects. A Seeking Alpha contributor with several Top Ideas to his credit, Eric stays informed of the latest trends through quantitative analysis, market research, and technological developments. His publications aim to provide a balanced and nuanced view of companies and the ecosystems in which they operate, with an eye toward shareholder value.Eric Robken in an Investment Advisor Representative through Ashland, a Registered Investment Advisor located in Texas.Disclaimer:Communications on Seeking Alpha do not constitute investment advice.Ashland Heights Capital Management, LLC is a registered investment advisor. Please visit our website http://www.ashlandinvest.com/disclaimer-and-privacy-policy for important disclosures.

Analyst’s Disclosure: I am/we are long HMLP. 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.

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