Teekay LNG Partners LP BUY – LNG Is The Only Viable Portion of Shipping Sector

TGP

 NYSE : US$38.06 BUY 
Target: US$46.00 

COMPANY DESCRIPTION:
Founded in 2004, Teekay LNG Parters (TGP) is the third
largest independent owner of LNG carriers. TGP was
organized as a publicly-traded master limited partnership by
Teekay Corporation (TK) as part of its strategy to expand its
LNG and LPG shipping sectors. TGP provides seaborne
transportation of LNG, LPG and crude oil under long-term,
fixed-rate time charter contracts.
All amounts in US$ unless otherwise noted.

 

Energy — Maritime
TEEKAY IS A-OK
Investment recommendation
We are initiating coverage of Teekay LNG Partners (TGP) with a BUY
rating and a $46 price target. Teekay’s strategy of growing organically
primarily through joint ventures with vessels fixed to long-term
contracts is ideally suited to the nature of the LNG business.
Investment highlights
 Substantial long-term charter coverage leads to cash flow visibility:
Teekay’s LNG fleet has substantial charter coverage, with an
average remaining contract length of 14 years. Long-term charter
coverage is critical for shipping MLPs in order to provide stability to
cash flows and maintain the safety of the distribution.
 Organic growth should drive distribution increases: With 15 LNG
vessels and 10 LPG vessels expected to be delivered through 2020,
Teekay LNG already has significant built-in growth. We expect a 6%
net income per distribution CAGR through our forecast period
(2017). The company’s growth profile is heavily weighted to 2017+,
which is when we expect the LNG market to be most robust.
 Leader in developing new technologies: The company was a leader
in developing LNG vessels with the new MEGI engine, which
provides substantial fuel savings to charters. While this is one of the
rare cases where ships were ordered by Teekay without charters
attached, the gamble paid off as five of the remaining vessels
(including options) were recently chartered to Shell for 6-8 years.
Valuation
Our $46 price target is based on dividend discount model using a 9%
discount rate and 3% distribution growth rate.
Risks
Geopolitical risks may hinder LNG projects in Russia from coming
online, and delays/cancellations of planned LNG export terminals in
North America and elsewhere may negatively impact fundamentals.

Tax website http://www.youroffshoremoney.com

Management  http://www.jackbassteam.com

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