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GasLog Ltd. (GLOG) Message Board

  • afinechief afinechief Aug 16, 2012 11:09 AM Flag

    The Long View

    For shorts: Some on the board seem to wish to short this. Good luck. Although GLOG will gyrate along with the market and I, for one, do hope it goes to 8 so that I can buy more of this nice utility-like cash flow "machine", the medium term (7-10 years) economic value being created by management has simply put a floor on GLOG. I do not know where this floor is but GLOG, in my humble opinion, is simply not going much below 9.25 even with wider-market driven gyrations.

    For longs:, although there are indeed many places to put one's money, I have a feeling we have an interesting proposition with GLOG: little risk of price collapse and a great probability of solid, not crazy-bubble-like, profit. GLOG has a few worthy aspects:

    1. Tax - I do not think this entity is taxed. Think about it. All the economic value being created will accrue directly to shareholders via divs (in due course)and appreciation. This is true for many other vehicles (REITS, MLPs, etc.) but, still, it is worth recognizing the power of putting such an investment into an IRA. No taxes anywhere to reduce the economic value! Sweet and rare!

    2. Risk - Low. Basically, revenue risk is essentially contracted away (for most aprt) and insurable risks are, well, insured. Yes, management has to run this well to ensure op costs do not balloon, but they seem well versed in the arts of LNG ship-running. Thus, in my humble opinion, this is a low cap rate investment.

    3. GLOG is a service business with no cost of good sold (GoGS). In other words, this is not a manufacturer. What a relief that is as all the manufacturing risks go away (compare that with energy producing MLPs). These guys are borrowing a sh&*load of money and building ultra-modern LNG tankers. The "CoGS" is essentially incurred up-front. And what a great time it is to incur a large investment based on such low rates they are getting (about 4.4% all-in, 60% fixed!!!!! - that's about 2.6% more than the US Government, for cying out loud!) (these guys will be below USTs (!!) when UST rates inevitably go up when the fear trade dissipates and inflation rears its ugly head). What a deal!

    4. Inflation - this is basically immune to inflation as their LT rev contracts have escalation clauses...that's right! Please - somebody - tell me where I can get a UST TIPS-like investment that will start paying a divy of .11 cents p. q. (about 5%, depending wher you got in) and grow over time? Wait until the fixed rate, inflation-fearing guys at PIMCO and elsewhere hear about GLOG!

    5. Hedged - Interest rates are fixed at 60%. Smart. they can still capture lower rates but most of rising rate risk is gone. And interest rates is a main cost given huge levered bank-financed investment in LNG tankers. Bank financing is committed (nice!). Combine this fact plus revenues that are subject, in large part, to some escalation under LT revenue contracts and, voila, you have a major winner in a rising rate/inflation environment and a solid player in a steady rate environment (by this I mean both inflation and interest rates).


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    • Thanks for the info on escalation clause.
      This stock is my next homerun with men on base.
      Be a couple years but it soon starts paying a 4.4% divi.
      Could pay .90 to $1.00 divi in about 2 years.
      Talk about risk:reward ratio, love it!

    • MORE

      6. GLOG is actually very similar to gas pipeline (on land) companies (both enjoy large moats, if you get my drift), but with no permitting and other regulatory nuisances. Best to look atb it as a water-based pipeline. The (future) yields are thus not bad in comparison but you have assured upside as time passes (time value of money). You just have to wait it out as the ships get delivered and start earning steady revenues.

      Now, GLOG will not jump to 20 anytime soon. Impatient LONGS will be disappointed. However, this is a patient play with low risk for anyone wanting to hold this for 5 years and longer. Imagine, in 5 years, you will be earning a 10% dividend on a stock with a cost basis of under 13 or so that, by them, would have likely appreciated to 25 or 25. As they pay off debt (mostly quarterly), you increase book value. It's lile owning a home outright after 15-20 years of payments. As they say in facebook, "like".

      Seems like a reasonable deal.

12.34-0.71(-5.44%)Jun 24 4:06 PMEDT