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Effective fleet transition enhances Nakilat’s value

Effective fleet transition 
enhances Nakilat’s value

Satyendra Pathak
Doha
Costs optimisation due to the transition of fleet management in-house has enhanced the value of Qatar Gas Transport Company (Nakilat), QNB Financial Services (QNBFS) has said in a company report released on Monday.
“Nakilat has successfully completed phase II of its fleet management transition programme with management and operations of an additional 10 vessels including the one delivered in January 2021. So far, this has played a major role in expanding Nakilat’s EBITDA margin from 74.6 percent in 2017 to 77.7 percent in 2020. We could see upside to our future margin assumptions when Nakilat is able to transition the remaining eight wholly-owned LNG vessels from STASCO,” QNBFS said in the report.
“We remain bullish on Nakilat and consider it as the best avenue for equity investors to participate in the long-term growth expected in Qatar’s LNG sector. Since we upgraded the stock to an outperform, Nakilat’ share price has appreciated by 16 percent, significantly beating the QE Index’s increase of 8 percent as Nakilat was re-included in the MSCI EM Index,” the report said.
Irrespective of the volatility of the LNG shipping market, QNBFS said, Nakilat’s business should remain relatively unaffected given the LT nature of its charters.
“Nakilat’s fleet continues to provide the company with stable, contractually sustainable cash flow that allows for a healthy residual income stream for equity investors after providing for debt service. Moreover, the 40-year life of Nakilat’s vessels against maximum debt life of 25 years continues to create refinancing opportunities to increase fleet size. Thus, we think further deals in LNG ships and FSRUs are likely. In the near term, the addition of 4 LNG vessels via Global Shipping should help earnings growth in 2021 and 2022,” it said.
“In terms of catalysts, we continue to believe the expansion of Qatar’s LNG output from 77 MTPA to 126 MTPA is a significant driver. Currently, our model does not assume any fleet growth and we will incorporate such expansion once more details become available. We foresee significant upward revision to our estimates and price target once we factor in this expansion,” the report said.
Nakilat continues to deliver strong earnings growth consistently. Stable ship revenue, along with continuing decline in operating costs and finance charges, helped Nakilat post solid results in the first quarter of 2021.
“We maintain our estimates and project an 8.8 percent earnings CAGR over 2020-2025. While wholly-owned vessel revenue should remain stable at a CAGR of 0.2 percent over the same period, the bottom-line acceleration should be driven by JV income growth and declining finance charges as deleveraging continues. For 2021, we project 12.5 percent EPS growth followed by a 7.5 percent increase in 2022,” QNBFS said.

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