Liquefied Natural Gas Limited (ASX:LNG, OTC ADR:LNGLY) has received a Buy recommendation with a 12 month price target of $7.70, up from a previous target of $5.20, from Sydney firm Fosters Stockbroking.
Shares in LNG are currently trading at $4.65. The following is an extract from the report.
Binding LTA now imminent for Magnolia. LNGL recently announced the Magnolia project was notified by Meridian LNG Holdings Corp (Meridian) it is now ready to progress a binding 20-year liquefaction tolling agreement (LTA) for 2mtpa with a tolling fee above US$3/mmbtu, above our previous assumptions.
This will be the first of 4-5 binding LTAs the project is targeting to sign in 2015 in order to achieve financial close on an 4 train project.
Kicker in the tolling fee upgrades Magnolia EBITDA to US$979m. We forecast 2021 as the first year of 4 trains in production that delivers US$979m EBITDA (100% basis), up from $864m.
We continue to model T1 commissioning in 2019 and highlight our EBITDA is on the basis of 6.8 mtpa guaranteed capacity.
Unrisked 4 train valuation for Magnolia revised to US$9b. We have made a number of changes to our model assumptions for Magnolia to reflect changes in the project's FID strategy, debt/equity ratio, AUD forecast and clarity on tolling fees.
Using our revised assumptions we lift our un-risked 4 train case from US$7.6b to US$9.0b on a 100% basis. In our LNGL valuation we include a risked valuation of A$3.3 billion or A$6.92/sh and assume 55% LNGL ownership.
Meridian LNG demonstrates LNG demand growth from Europe. LNGL's confirmation of the Meridian LTA and its end user being an investment grade European utility reinforces our view the export LNG market will not be reliant on growth (or new buyers) to come from Asia, despite Asia remaining the bulk of global demand.
European LNG demand was reported at ~30mt in 2015, with recent analyst coverage indicating this could grow to ~90mt in 2025.
FERC schedule now critical to timing of first LNG. June 2015 quarter we expect to see LNGL to finalise the EPC contract and continue to de-risk the project.
It is now key for LNGL to finalise the contract and capital cost before 30 June 2015 to maintain its target delivery of LNG late 2018.
Bear Head LNG progressing approvals and gas supply. Bear Head project team continues to deliver approvals for its 12 construction permits, with only 1 outstanding.
We expect LNGL to make an update in the September quarter on progress with gas supply and transport solutions to the project location.
Upgrade our risked equity valuation at $7.70/sh. Our risked equity valuation is increased to $7.70/sh which includes a blended risk adjusted valuation for both Magnolia LNG & Bear Head LNG only and excludes Gladstone.
We maintain our BUY rating and upgrade our 12mth PT at $7.70/share (previously $5.20).
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