Key insights
- An analyst provides a valuation of Venture Global (VG), a competitor to $LNG, highlighting its higher spot market exposure. VG faces legal challenges, notably a $3B potential liability to BP. The analyst projects forward EBIT of $10-13B based on Plaquemines' ramp-up and high LNG prices, suggesting an EV/EBIT of 6-8x. Factoring in interest, taxes, and preferred dividends, net income could reach $6.4-$8.6B, implying a market cap of $51-$7
I first posted about VG here a year ago: https://www.reddit.com/r/ValueInvesting/s/CTrTYsCnpe
Curious for some thoughts on the pricing of the company here.
Kind of an interesting alternative to $LNG, as they have more spot exposure.
In fact they were embroiled in a series of legal disputes as they sold LNG out from under its contract clients onto the spot market during 2022, when LNG spiked.
Venture global won the cases with Shell and Repsol, and settled with Unipec. The last major case is BP, which won its case against VG, and is expected to get something over $3 billion in damages, to be awarded in 2027.
There are still some smaller cases outstanding with Edison, Galp, and Orlen.
These legal cases have created an overhang on the company for some time.
Market cap is currently $35 billion with an EV of $73 billion. So maybe we tack on $3-5 billion of contingent liabilities for an EV of $77-78 billion or so.
TTM EBIT is $5.1 billion, but that does not include a full year contribution from Plaquemines. It has continued to ramp capacity and will reach full capacity by September 2026.
Euro area and Asian LNG prices have roughly doubled since the start of the war. In the meantime, Henry Hub natural gas prices have not materially risen. Around 50-60% of LNG shipments for 2026 should be contract and 40-50% should be spot.
I think given the ramp up in Plaquemines and the higher earnings on spot contracts, a reasonable estimate for forward EBIT in this environment is somewhere between $10-13 billion.
That would put the EV of company somewhere around 6-8X forward EBIT, even considering the extra liabilities from the BP lawsuit.
Let’s say interest is $1.6 billion, 21% tax rate, and $400 million preferred dividends. That would leave $6.4-$8.6 billion in net income to common.
My guess is a reasonable PE ratio, even given the enormous debt and contingent liabilities is somewhere around 8X forward earnings. That would put the market cap around $51-$70 billion, and the stock price around $21-28 per share, 30%-80% higher than current prices.
I realize the company will probably be over earning this year, and eventually Qatar‘s LNG export facilities will be rebuilt.
But from what I’m hearing, it will take them a very long time, and I think there’s a substantial probability we enter an environment where there are persistent terrorist threats on LNG facilities in the Middle East, so $VG and $LNG cargoes may carry a premium for a long time.