From the Box:
We believe Golar LNG Limited (NASDAQ: GLNG, referred hereunder as “GLNG” or the “Company”) and Golar LNG Partners LP’s (NASDAQ: GMLP, referred hereunder as “GMLP” or the “LP”) (together also referred to as the “Group”), are extremely overvalued and therefore we initiate coverage with “Sell” for both. The recent share price of more than $47 for GLNG and a unit price of more than $38 for GMLP are significantly higher than their fair market value of $22.5 per share and $8.25 per unit.I can usually make an Investment Policy Committee-level pitch in under 35 pages. I think the shortest was "It's a good one, it's going higher". That said, and in spite of the fact that this reads like an advocacy screed, I'll read anything that might have some value.
The following are the main reasons for our recommendation:
• The Group has demonstrated over the years that it has poor earning’s quality. GLNG’s historical dividends where based almost entirely on one-time items. The LP is engaged in a Ponzi like scheme in which it focuses investors’ attention to its cash distributions while approx. 50% of this distribution is actually a repayment of invested capital, as the depreciation of the vessels is a real cost to investors. The “real” yield to investors of the GP is only about 1.9% vs. a current yield of the 20 year United States Treasury of approximately 2.65%.
• The Group has a history of poor corporate governance, related party transactions and front
running by its insiders. In addition, the Group has found a new source for profits and cash for
expansion - its subsidiaries. GLNG has shifted vessels from one company to the other at inflated prices based on “independent” valuation advice provided by the underwriter of its subsidiary’s IPO.
• Valuation and comparable transaction in the market do not support the current share and unit
price. Current prices are driven by Sell-Side analysts’ “Buy” recommendations which are based on flawed models and short term market dynamics and which fail to take into account the long term economics of the LNG shipping business. Comparable vessels have been recently traded at prices less than half the value implied by the market price for GLNG’s and the LP’s vessels. The current shortage of vessels is expected to end by 2014 as in 2013 and 2014 more than 60 vessels (15% of the current market) will be delivered - meaning that current prices will drop to their historical equilibrium levels. ...MORE (35 page PDF)
Here's Barron's on the report:
Shortsellers Down On Golar LNG and Its Limited Partner
An independent research outfit called Pandora’s Box Research recommended selling Golar LNG ( GLNG), a Bermuda-based shipping company engaged in the transport, re-gasification and liquefaction of natural gas, and a related entity, Golar LNG Partners (GMLP), which is a limited partnership that owns and leases floating storage, re-gasification and LNG carriers.
Pandora’s Box researchers, who are not named, have short positions in the stocks, according to its online report, in PDF format. The call got a lot of chatter after Muddy Waters Research, well known for its own short calls on Chinese smallcaps, mentioned it on Twitter....MORE
