Value Line has initiated coverage of GasLog Ltd. (GLOG) in its flagship product, The Value Line Investment Survey. GasLog engages in the ownership, operation, and management of vessels in the liquefied natural gas (LNG) market. The company provides maritime services for the transportation of LNG around the world, along with LNG vessel management services. GasLog was incorporated in Bermuda in 2003. Its common shares began trading on the NYSE on March 30, 2012. GasLog’s headquarters are in Monaco, and it has 91 full-time employees, not including contractors, outsourced employees, and seafaring staff on owned and managed ships.
GasLog provides support to international energy companies and their LNG logistics chain. Its fleet, as of December 31st, 2012, consisted of 12 LNG carriers, including four ships in operation and eight ships on order from Samsung Heavy Industries. The company also manages 12 other LNG carriers, including 11 ships owned by BG Group, a major player in the global energy and natural gas markets, as well as a carrier in which it has a 25% ownership.
Each carrier has a capacity of between 155,000 and 174,000 cubic meters. Management believes this size is optimal given that it is compatible with most existing LNG terminals around the world. The ships also use tri-fuel diesel electric propulsion technology, which lowers fuel consumption and environmental emissions compared to traditional steam-powered LNG carriers that make up around 75% of the current global fleet.
GasLog operates its business in two segments: vessel ownership and vessel management. The former group (82% of 2012 revenues) generates revenues by chartering ships to customers on time charters of up to ten years. The latter segment, which is carried out by its wholly owned subsidiary GasLog LNG Services, generates sales through construction supervision services and providing technical ship management services, including training, providing a crew, maintenance, regulatory, health, and safety issues.
GasLog benefits from the fact that the LNG shipping business has high barriers to entry, as it requires a significant amount of capital, qualified personnel, and a high degree of technical management. It also has one of the youngest fleets in the industry. Once the company receives delivery of the last of its eight contracted ships, the average age of its owned fleet will be 2.7 years, compared to the current industry average of 11.3 years.
The ownership and operation of ships has inherent risks, including mechanical failure, collision, damage to the vessel, cargo loss, and marine disaster, among others. Another risk is that, as of December 31, 2012, 97% of the company’s revenues were generated from one customer, BG Group. As a result, the loss, or reduction, in business from BG would clearly have a significant impact on the company’s sales and earnings. However, upon delivery of two new ships, Shell will become a major customer. Another risk is the fact that GasLog’s chairman, Peter G. Livanos, is a controlling shareholder, with more than 50% of outstanding shares. As a result, he has the ability to control the outcome of most matters on which shareholders vote on.
While GasLog doesn’t face a large number of competitors, it does compete with a few independent owners that also have newly-built, technically advanced LNG carriers. The company also sees pressure from some of the major oil and gas producers that own LNG carriers, as well as national gas and shipping firms. The inherent volatility of natural gas prices also pose a risk to the company’s profitability.
All told, we view GasLog’s business prospects favorably. The company has been benefiting from recent additions to its fleet, including the Shanghai, Skagen, Sydney, and Santiago in 2013. Increased volumes, along with potentially greater voyage distances, should increase requirements for LNG carriers, and support good results at GLOG.
Subscribers interested in learning more about this owner and manager of LNG vessels are advised to consult Value Line’s quarterly reports for GasLog, as well as any supplemental reports and relevant articles that may arise as important news comes to light.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.