An Appealing MLP for the Long Term
- By Subia Khan
GasLog Partners (GLOP) is a growth-oriented limited partnership that was formed to own, operate and acquire liquefied natural gas (LNG) carriers that are on long-term charters. It is a subsidiary of GasLog Ltd. (GLOG) which has 30% ownership in the firm.
As per the agreement, the MLP currently owns nine LNG carriers which operate under multi-year charters with a wholly owned subsidiary of Royal Dutch Shell PLC (RDS-A)(RDS-B). The MLP also has the options and other rights based on which it may acquire additional LNG carriers from GasLog, which would help it provide further growth opportunities.
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The intrinsic value of GLOP
This MLP has the potential to provide good returns both in the form of growth and cash distribution.
Distribution yield expected to rise further
For the third quarter, GasLog Partners has made cash distribution of 47.8 cents per unit implying current yield of 9.3%. Going forward, cash distribution yield will continue to increase.
According to a dropdown agreement with GasLog, GasLog Partners has the right to acquire new LNG carriers that are on long-term contract. Currently, GasLog has 13 dropdown candidates that can provide growth for GasLog Partners.
In the coming quarters, the acquisition of GasLog Seattle will also have a positive impact on the cash distribution. As of Nov. 1 GasLog Partners has 100% ownership of GasLog Seattle at a cost of $189 million. GasLog Seattle is a modern LNG carrier with PSVE propulsion and is chartered to Shell through December 2020. It is the youngest available vessel with GasLog Partners and is expected to generate $20 million in EBITDA and $20 million in distributable cash flow per annum. It is expected to boost cash distribution by 5% annually.
Attractive valuation
GasLog Partners is currently trading at a price-earnings (P/E) of 9.8, which seems apealing considering broad market P/E. Also, if we compare the LP's EV/EBITDA of 9 with its immediate peer Teekay LNG Partners (TGP), which has an EV/EBITDA of 13, GasLog Partners looks undervalued.
Further, as LNG vessels are added to the fleet, there will be steady growth in revenue and EBITDA, which makes the LP appealing for the coming years.
Liquidity and debt management
As of Sept. 30 GasLog Partners had total outstanding debt of $702 million of which $40.6 million is repayable within one year. With available cash and cash equivalent of $109.7 million, debt repayment is not a concern.
GasLog Partners also has steady cash inflow from long-term contracts and as debt servicing is likely to remain comfortable, financing drop-downs from GasLog is not a cause of concern.
Therefore, current debt is unlikely to be a concern and new debt addition will also be backed by fresh cash flow.
Industry outlook
With OPEC agreeing to cut down on its production, oil prices have surged to more than $50 per barrel. As oil moves higher, demand for LNG will increase in emerging markets.
Just as an example, countries like China and India have been taking advantage of attractive LNG prices with year-to-date import volumes up by 27% and 34%. In addition to China and India, there are other potential importers of LNG as shown below. Also, since both supply and demand are in momentum, increasing demand would have a positive impact on the shipping industry as well.
Conclusion
GasLog Partners is an attractive investment option for steady cash inflow and the LP is also likely to see steady revenue and EBITDA growth. Considering the factors I discussed, I am of the opinion that GasLog Partners has the potential to give good returns in the long-term. Current valuations are attractive for buying the LP for long-term.
Disclosure: No position in the stocks.
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The intrinsic value of GLOP
