Why This is an IPO That Will Rebound

By Ryan Guenette - August 26, 2012 | Tickers: FRO, GLOG, GLNG, SFL, TGP | 0 Comments

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Editor's Note: Per GasLog's Investor Relations Department, the dividend payment of $0.11 will be quarterly, not annually--this article has been corrected.

On March 30^th, GasLog Limited (NYSE: GLOG) began its life as a publicly traded company on the New York Stock Exchange. GasLog is an owner, operator, and manager of liquefied natural gas carriers. The company operates 14 tankers, and is projected to increase its tanker count by eight in the near future. Pricing below the expected range of $16 to $18, shares dropped 11% to close at $12.41. Ever since going public, GasLog has been falling, reaching as low as $8.76 in intraday trading before rebounding to the current price of $10.22 as of this writing. This initial public offering is yet another example of the underwriters vastly overestimating the interest and value of the companies they are taking public, which has caused immense pain to buyers on the first day. However, the current movements of the stock appear to be signaling a stabilization in the stock, so why is this IPO blunder one that will rebound?

Explosive Fundamentals

In 2012, the average analyst consensus believes GasLog will report earnings per share of $0.17. In 2014, the street anticipates the company to derive $1.21 from its business operations. This represents an increase of 611.76%. Based on these statistics, the company’s compound annual growth rate (CAGR) is 166.79%, a vastly unsustainable rate for a company of any size. GasLog’s growth is anticipated to be fueled by their rapid expansion of their tanker count. After the completion of their expansion plans, their growth line will flatten out, but that is still 3 years into the future.

Additionally, at the current moment the company does not pay out a dividend, but has expressed plans to begin dividend payouts. In 2012, the street expects the company to pay out an quarterly dividend of $0.11, which at the current price puts GasLog’s dividend as yielding 3.89%. By 2014, the average analyst consensus believes the company will be yielding 5.07% at current prices, paying out an annual dividend of $0.52. GasLog is a smaller company compared to some of its colossal competitors, being only worth around $650 million, so GasLog has more flexibility and room to expand into the future. From this we can see the rapid expansion set to occur in GasLog’s earnings per share and dividend over the coming years.

The chart below displays GasLog’s sales, operating profit, net income, net margin, operating margin, earnings per share, dividend, and rate of dividend (the percentage of net income that is paid out in the dividend) over the coming years.

Risk versus Reward Profile

GasLog is much smaller than many of its competitors, which comes with risks and rewards. GasLog will be less immune to an occurrence to one of its tankers than other companies with hundreds of ships, but has enough tankers that if something did happen, they would be able to absorb the shock. The company’s smaller size also gives it more room to grow, as the company is planning to expand its fleet by 57.14% in the coming years, a feat companies of more substantial size could not pull off. However, GasLog will not become stuck with a fleet of tankers with nothing to ship. The company has already signed long-term contracts with British Petroleum and Shell. Additionally, increasing demand is only set to increase into the future, as the chart below displays, and all this natural gas will have to be transported by tankers.

In conclusion, GasLog is in a sweet spot in terms of size, will experience significant growth over the future due to its expansion plans, has already secured long-term contracts with two of the largest companies in the world, and will not be stuck with 22 tankers that have no use.

Who is the King of The Tankers?

Compared to some of GasLog’s most prominent competitors, such as: Golar LNG Limited (NASDAQ: GLNG), Teekay LNG Partners L.P. (NYSE: TGP), Ship Finance International Limited (NYSE: SFL), Frontline Limited (NYSE: FRO), GasLog stacks up relatively favorably.

In terms of growth, Golar leads the industry while GasLog follows closely behind. All companies except for Frontline pay out dividends, with Ship Finance possessing the largest dividend and Golar possessing the fastest growing dividend. In the fundamental ratio comparison, Golar appears a little pricy, while Ship Finance appears to be trading at a discount. When growth is taken into account, GasLog appears to be a bargain, while Teekay trades at a huge premium. In the net profit margin comparison, all companies possess extremely attractive margins, except for Frontline, which is underwater.

The Foolish Bottom Line

The underwriters of the GasLog initial public offering vastly overestimated the interest and value in the company, which has led to a disastrous string of events for GasLog. However I believe GasLog has fallen well below where it is worth, as the book value of the company is $10.30 a share. GasLog is set to explode in earnings as they expand their tanker count, and will begin to pay out massive dividends. GasLog compares relatively favorably to its peers, and should take advantage of a growing demand for the shipment of LNGs. The foolish bottom line is that many initial public offerings will not rebound, but GasLog will.    

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