Valuation of Golar LNG

Abstract

Golar LNG is a company engaged in the LNG shipping business. The company fleet has grown from 6 vessels in 2001 to today’s fleet of 13 vessels, and a further 13 vessels due to be delivered from Q3 2013. The company is currently engaged in acquisition, ownership, operations and chartering of LNG carriers, FSRU vessels. It has also recently signed a conditional agreement for developing its first FLNG vessels, with the aim of launching three converted vessels within mid 2015. This thesis has an analytical approach, emphasizing detailed valuation of the individual vessels. The valuation is supported by a strategic external analysis (Porter’s five forces model), but the cash flow calculations are given the highest focus, and they are also based upon some reasoned assumptions not being highlighted in the strategic analysis. The estimated share value is evaluated by use of comparative analysis, and is also made subject to a sensitivity analysis of the individual model-parameters. Golar LNG is trading at higher multiples than its peer group, and the share price is exposed to changes in charter rates due to many vessels are not committed to charter contracts. The thesis concludes that Golar LNG is currently fairly valued at NASDAQ, albeit the market value is 8-10% less than my estimated share value. Given the short term uncertainties surrounding carrier charter rates, and the company’s low contract coverage in the carrier business segment, a ‘HOLD’ strategy is recommended until some downside risk is removed. However, in the long run, it is expected that the stock will be a good investment, even at current share price levels.