Today we acquired a new position in Golar LNG (GLNG), an LNG transportation, regasification, and liquefaction company. GLNG charters, and is developing a floating LNG platform ship (FLNGs) of the type used to ship dense LNG across the ocean, then convert it back to a gas at the destination. Shipping gaseous NG is economically impossible – it’s value to volume ratio is far too low to justify shipment.
This is an industry with extreme barriers to entry – there is only one ship of this type in the world (the Prelude, operated by Shell). GLNG’s attempt to convert an existing LNG ship into an FLNG is the first of its kind, and if successful it would cut literal years off of the production cycle of the other FLNGs proposed or in production (none are in production yet to our knowledge, though four others have been proposed).
Successful completion of their project ship (named the Hilli) would make them the second player in a hugely underserved field. Production is still on schedule (barely), and is scheduled to enter service as soon as September of 2017.
The remaining risk factor is GLNG’s recent moves to buy out most of the partners in this venture for upwards of $470mm, causing them to post a $0.70/share loss last quarter. That move cut their share prices from around $28 to the current $22, though logically the prices should recover. They did not lose the money, it was simply a reacquisition. We, alongside most other analysts, anticipate a recovery to at least $28 by they end of the year. Analyst sentiment projects values as high as $40 by the end of this year, with EPS growth through at least 2020.
Also – Seeking Alpha is holding a series of conferences today on Maritime Industrials:
Today we saw a portfolio setback as FTRPR begins to price itself for the new future cashflows (June 30 will see the first $2.78/share distribution since we began holding this asset). Fortunately the price change seems to be going fairly smoothly.
In other portfolio news, markets all fell nearly a percent today with the energy sector leading the plunge. RDSA, GPP, and SLB and all down more than a percent today and we had only five assets move up today. Expect some recovery tomorrow – and look for completed asset reconciliations by the end of the week.
Today we faced a reporting setback – a core formula we had been using in almost every report was depreciated without warning. We’re working on coding a replacement ourselves, but aren’t anticipating that being complete for some time. Until that solution is complete, reports will be delayed by one day and can be expected before market open the following day.
We’re still facing steady headwinds in our portfolio, Oasis petroleum dropped a devastating 10% in trading today. That puts that position into real loss, but we’re still somewhat insulated from the loss we would have faced in the pure stock position. We remain confident that we’ll see a rally in the 67 days remaining to expiration.
Today’s session again highlighted the need for us to alter our unrealized P/L calculations to allow for more accurate tracking of future values in Buy/Write positions. While we technically lost only 0.3% of our portfolio value on a dip in US Steel and Oasis Petroleum, our current calculations sent us down more than 1.2% in trading today. Since this is not accurate, we aren’t worried about the drop, but we are worried about our current calculation inaccuracy. We’re actively working on a solution to that discrepancy.
Today we began responding to a situation that is reducing the relevancy of our unrealized gains/losses pin regards to our portfolio net value. In the case of a buy/write how unrealized losses handles the sold call option is technically the safest method – cost basis is established as the cash inflow at the time of sale, and if our prediction regarding stock price movement is accurate the ask price will increase (along with the fact that ask price will have been higher even at the time of sale). This means that for the duration of the position the call option will continue to take unrealized losses until it expires. This will always remain an important statistic – what would the portfolio be worth right now if we tried to convert it to cash in its entirety. However, net present value of the portfolio will start to diverge from this value by an increasing amount and it is therefore important to publish both of those values side by side.
We have decided to stop simply storing the number provided by schwab’s calculation. While this number will always be accurate, and can be used later to audit our automation we will be dramatically altering the math behind the daily report over the next week. This will occur alongside a full redesign of the page to bring it in line with the current position reports provided on US Steel and Oasis Petroleum.
Today we’ve seen strong intraday volatility, and a huge dropout in the price of crude. This morning’s EIA report indicated a sharp rise in the inventories of both crude and gasoline, and while the gasoline spike was anticipated the crude spike sent spot prices down 5% in early trading. This smashed into our position in Oasis Petroleum, putting that position at a net loss. We’re expecting that much of today’s price movement was a little reactionary, and we’re anticipating a recovery throughout the rest of the week.
This morning HDS missed their earnings projections, and announced the sale of their Waterworks division to a holding group for $2.5 Billion in cash. Unfortunately that slashes the value of our call options, but fortunately it was a very small position. The current value of the call options is a literal $0.00 – there is no reasonable way for their stock price to exceed the strike price by expiration. While that is unfortunate, the total value of the position when we opened it was less than $250, so we’re really not that upset.
On analysis of the situation with HDS, we’re mildly disappointed by the market response to the HDS earnings call. EPS were at a healthy $0.63/share, and while this is the lower end of the projected range of $0.69 to $0.63, it is still within the range. HDS stock price dropped 15.99%, which is a response you’d expect from a posted loss, or at least a more significant EPS cut. Gross margins fell slightly but sales still grew in line with previous months and years. Simply put – HDS is doing fine, and that incoming $2.5 Billion will allow them to better leverage their traditionally profitable in-store sales (at retail locations like Home Depot and Lowes).