Blindspot Value

Deep value, special situations, and cyclical inflections investor. Not financial advice.

[Blindspot Value @blindspotvalue]

Latest deep dive out on $GLNG. As a relatively niche LNG infrastructure asset in the eyes of the broader market, $GLNG is the only provider of floating liquefaction vessels (FLNGs) as a service for energy companies.

Essentially, $GLNG builds these floating liquefaction terminals at ~5.5x CAPEX/EBITDA. This EBITDA is contracted and often comes with a one-way call option on LNG prices (every $1 above $8/mmbtu, GLNG gets ~$70M of EBITDA).

$GLNG is currently expected to have 3 FLNGs on the water by end of 2028, which would generate $800M of contracted EBITDA plus ~$1.1B of EBITDA at today’s LNG prices (I estimate ~$400M at futures prices). All this for <$7B EV and <$5B market cap today.

1/n

[Blindspot Value @blindspotvalue]

@TechEquityEng Good points. Not a fan of sum-of-the-parts arguments for a name like this but it also paints an interesting picture (e.g. multiple implied on US mobility)

[FRAGMENTS Value @FragmentsValue]

𝗗𝗲𝗲𝗽 𝗩𝗮𝗹𝘂𝗲 𝗥𝗲𝗽𝗼𝗿𝘁 — 𝗔𝗱𝘃𝗮𝗻𝗦𝗶𝘅 ($ASIX)

𝗔𝗱𝘃𝗮𝗻𝗦𝗶𝘅 𝘁𝗿𝗮𝗱𝗲𝘀 𝗮𝗿𝗼𝘂𝗻𝗱 $𝟭𝟱 𝗮𝗴𝗮𝗶𝗻𝘀𝘁 $𝟮𝟵.𝟱𝟭 𝗼𝗳 𝗿𝗲𝗽𝗼𝗿𝘁𝗲𝗱 𝗯𝗼𝗼𝗸 𝘃𝗮𝗹𝘂𝗲 𝗽𝗲𝗿 𝘀𝗵𝗮𝗿𝗲. 𝗧𝗮𝗻𝗴𝗶𝗯𝗹𝗲 𝗯𝗼𝗼𝗸 𝗶𝘀 $𝟮𝟲. It owns five American chemical plants, with fertilizer now its largest revenue line.

Across 2023–2025, the business generated just $18 million of free cash flow before other investment and dividends. Most of the operating cash went back into the plants.

Today’s report investigates whether the discount sufficiently accounts for that spending. We value the production assets using industrial transactions and construction costs, deduct the obligations attached to the business, and test the result against its cash generation.

The full Deep Value Report is now available, including our Bear, Base and Bull valuation ranges.

Here:https://t.co/Q78rrmRPT9

[Richard Toad @rich_toad]

Do great work, share it publicly, job leads come.

Andrew Walker heading to the equities team at Bridgewater Associates! And I highly doubt he got the job by applying on a job portal.

[Blindspot Value @blindspotvalue]

$AMR pre-released Q3 numbers. Highlights include ~$29M EBITDA, stronger volumes (3.9Mt), and a realized price of ~$121/t vs ~$107/t cost, representing continued cost headwinds.

I exited most of my position on Aug 27 due to valuation. With the recent pullback, while I haven’t increased my position yet, shares are looking more interesting again (~high-teens % normalized FCF yield).

I plan to provide a complete update after the full Q3 results + call in early November.

[Blindspot Value @blindspotvalue]

Makes sense - presumably you’d get a nice re-rate if growth returned (even MSD-HSD enrollment growth vs historically higher).

The buyback potential is interesting to me given the balance sheet and valuation here. If it takes them a bit longer to work through the tech issues/they have to invest a bit in outcomes, then there is still a possibility for solid EPS growth from buybacks even with minimal top line growth?

[Blindspot Value @blindspotvalue]

@ASB_Partners What do you think happens with the capital allocation review for $LRN? It seems with an increased focus on outcomes post-LSOA there could be impacts to growth/margin but curious how you think about that as well.

[Blindspot Value @blindspotvalue]

@DeepSailCapital $LUMN

[Blindspot Value @blindspotvalue]

@justfactstruth Interesting post and I like the napkin math. Curious how you think about puts/takes for AP multiple and what would change your view there?

[Blindspot Value @blindspotvalue]

@valuefiend Agreed, buybacks alone could get an ok return at this valuation (setting aside growth or a possible re-rate closer to historical levels). Will be interesting to see what comes of the capital allocation review.

[Blindspot Value @blindspotvalue]

Any thoughts on $LRN print? Seems that the execution story/tech issues may still take time to work themselves out and thus enrollment growth is still weak.

Assuming the tech issues are eventually resolved, would love to hear any thoughts on why the long term growth story is broken?

[Blindspot Value @blindspotvalue]

@valuefiend Yeah I’ve gotten the same impression. All else equal probably leads to slower normalized growth even assuming they fix the tech issues. Hard to pin down but MSD-HSD feels right? At this valuation, it appears priced for zero growth anyways IMO.

[Blindspot Value @blindspotvalue]

Great points and 100% agree. The outcomes piece is super difficult to measure apples-apples. Definitely with everything going on can see how people conclude LSOA could be the canary in the coalmine and indicative of a broader systemic issue (e.g. Stride prioritizing growth over outcomes)

[Blindspot Value @blindspotvalue]

@justfactstruth Great post - whats the napkin math behind the $400-600M?

[Blindspot Value @blindspotvalue]

@lasse108 $AMR

[Gabriel Castro, CFA @gabcasla]

$GLNG
It’s annoying to see how the market is mispricing this company.

I mean, it’s true the company should be viewed as an infrastructure play—a kind of bond proxy—and its valuation should reflect rising interest rates. But the current valuation is just silly. It has $17bn in contracted EBITDA over the next 20 years with strong counterparties. That EBITDA represents free cash flow before debt service and interest, as the business requires virtually no taxes or maintenance capex, yet the company is trading at around $4.5bn. That’s before adding the fourth FLNG, which has already reached FID and could significantly increase run-rate EBITDA from $800m to $1.1bn–$1.2bn. It’s also before considering the 20-year commodity upside option Golar signed into its contracts, which could generate free cash flow equivalent to the market cap in a year like this one—and multiple times that amount if we look at 2022.

Is the market so silly? I think so… As I’ve argued, I don’t expect Goldman Sachs’ strategic review to end in a sale, and that’s likely been weighing on Golar’s share price recently. I can see Goldman bringing in a strategic partner to develop and accelerate the strong pipeline, but I don’t think any capable external player could both fund and execute that growth pipeline.

After meeting Tor Olav Troim at my office this week, I’m even more confident that Golar has four or five highly credible projects it could sign soon. Recent reports from TradeWinds and Africa Intelligence confirm that these projects are moving ahead—and that only Golar can deliver.

1) TradeWinds reported that Eni and Repsol are moving ahead with Venezuela’s FLNG project. Golar LNG, BW LNG, Bumi Armada, SBM Offshore, Samsung Heavy Industries, Hanwha Ocean, and Saipem have reportedly submitted EOIs, with a full invitation to tender expected later this year.

2) Africa Intelligence reported that Trident Energy is looking to monetize its 1 trillion cubic feet of gas reserves in Congo, with Golar and Exmar currently competing for the contract.

With all due respect to the companies mentioned in the news, nobody can really compete with Golar. Only Samsung and Exmar have ever built an FLNG vessel. That’s no simple undertaking, so I don’t expect any of them to take on more than $2bn in risk to get started. As for Exmar, it built a very small liquefaction vessel called Tango, which performed so-so for a while before Eni bought it in 2022. Exmar’s accounts are public, and it’s well known that the company doesn’t have the funding capacity to carry out a project of this size. I know Exmar very well, as we recently funded $12m out of a $150m bond. Finally, Samsung has experience, but it’s a shipyard, and financing a customer over 20 years isn’t its business. I don’t expect it to change its business model now.

Gas is hot right now, and demand is expected to grow considerably. After the conflicts involving Russia and the Middle East, every country realized it needs to diversify its supply; it can’t rely only on the US, Russia, or Qatar. This is a great time for Golar to capitalize on the current environment, which is why it’s building a $2.5bn FLNG on spec. I expect we’ll have a contract within the next six months, and thereafter, Golar will find another compelling project for the fifth.

I may be overthinking this, and the current weakness could simply be driven by its association with shipping—which seems silly nowadays, given its legacy as a shipping company. Or even some HF exiting as they are forced to cut leverage because interest rates are rising… But to be fair, I just struggle to understand why Golar is so cheap, even without factoring in growth or commodity upside.

[Ayuso @AyusoValue]

Not a surprise if you subscribe to Freight&amp;Barrels $GLNG

[Blindspot Value @blindspotvalue]

$GLNG orders conversion vessel for FLNG #4. Repeat design vs FLNG #3 (Esperanza) reduces execution risk to some degree, while 20% larger storage capacity will provide the customer with additional offloading flexibility. FLNG #4 remains scheduled for 2029.

All positive data points for FLNG growth pipeline portion of value.

[Blindspot Value @blindspotvalue]

@ErnoSalonen I used the $2.2B build cost for Esperanza (FLNG #3) divided by the $400M of tolling EBITDA for that vessel.

[Blindspot Value @blindspotvalue]

Latest deep dive out on $GLNG. As a relatively niche LNG infrastructure asset in the eyes of the broader market, $GLNG is the only provider of floating liquefaction vessels (FLNGs) as a service for energy companies.

Essentially, $GLNG builds these floating liquefaction terminals at ~5.5x CAPEX/EBITDA. This EBITDA is contracted and often comes with a one-way call option on LNG prices (every $1 above $8/mmbtu, GLNG gets ~$70M of EBITDA).

$GLNG is currently expected to have 3 FLNGs on the water by end of 2028, which would generate $800M of contracted EBITDA plus ~$1.1B of EBITDA at today’s LNG prices (I estimate ~$400M at futures prices). All this for <$7B EV and <$5B market cap today.

1/n

[Blindspot Value @blindspotvalue]

https://t.co/Lf413jB3iv

[Blindspot Value @blindspotvalue]

The catalyst path is clear.

FLNG #4 being contracted would reduce uncertainty and set the stage for $1.2B of contracted EBITDA plus commodity upside by 2030. Certainty in the contract and proving out the model with additional assets/deployments across regions will be crucial.

The ongoing strategic review led by Goldman Sachs could result in either a sale of the company or $GLNG emerging with accelerated growth potential (given the capital recycling business model) or unlocking SOTP value. Management/the Board are aligned and stand to benefit from a favorable outcome.

As time goes on, the closer we get to Argentina’s LNG exports being operational and $GLNG’s financials inflecting. Execution risk should continue to fall as the pipeline gets built, FLNG #3 is fully built, driving value over time.

Risks include Argentina exposure which is less scary than it appears given contractual protections on taxes/regulatory burden (RIGI), contracts paid in USD and governed by English Law/ICC Dispute Resolution, and bipartisan support in Argentina.

Even in a worst case, $GLNG’s vessels can sail away and find new charters despite the disruption.

5/n

[Blindspot Value @blindspotvalue]

Full write-up on my substack.

6/n