3 Reasons GasLog's Rally Isn't Over

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GasLog (NYSE: GLOG  ) has been flying high lately, with the stock surging by 42% so far in 2014. The strong upside has been fueled by robust fundamentals, and this article discusses the positives and the reasons to believe that the rally can continue.

Surging revenue and EBITDA
For the first quarter of 2014, GasLog's revenue and EBITDA surged by 162% and 205% respectively to $57 million and $34 million as compared to first quarter of 2013.

This upside was driven by an increase in the number of owned vessels coupled with an increase in time charter equivalent day rates. While the average number of vessels increased to 8 from 2.8 on a year-on-year basis, the day rate increased by 3.4% to $79,561.

On a relative basis, the growth seems exceptional with Teekay LNG Partners (NYSE: TGP  ) reporting a revenue growth of 3.6% to $100 million for the first quarter of 2014. The growth has been driven by robust addition of vessels to the fleet.

Teekay LNG scores over GasLog in terms of a higher dividend yield of 6.2% as compared to 3.9% for GasLog. This advantage is more than offset by the point that GasLog is growing at a stellar pace and the stock upside can be robust.

GasLog Partners LP (NYSE: GLOP  ) , which recently got listed, also deserves a special mention here. The limited partnership currently has a fleet of three vessels and has the option to purchase twelve LNG carriers from GasLog over the next three years. With an expected distribution per LP unit of $1.5, GasLog Partners currently offers a dividend yield of 5.3% with strong growth visibility as compared to Teekay LNG.

Contracted revenues will provide stable cash inflow
After clocking $57 million in revenue for the first quarter, GasLog expects $264 million in revenue for the remainder of FY2014 and this implies annual revenue of $321 million. Further, the expected revenue (as per current firm contracts) for 2015 and 2016 is $343 million and $381 million respectively.

The important point to note here is that the fleet utilization for 2015 and 2016 is currently expected to be 82% and 77% respectively. However, as the new fleet gets contracted, the revenue will be higher than the given estimates. In other words, GasLog will continue to grow at a decent pace over the next few years after a significant revenue bump-up in the current financial year. The company's forward contracts are with BG Group and Shell, and strong counterparties ensure that the revenue inflow is certain.

Valuations are attractive
GasLog reported $57 million in revenue and $34 million in EBITDA for the first quarter of 2014. This implies an EBITDA margin of 60% and an EBITDA forecast of $193 million on $321 million expected revenue for FY2014.

GasLog therefore trades at an EV/EBITDA multiple of 13.1, which is attractive when compared to peers. Teekay LNG is currently trading at an EV/EBITDA valuation of 21.1.

Bottom line
GasLog is growing at the right time with a boom in the LNG vessel industry. A vessel utilization of 96% for the company in the first quarter amid significant vessel addition underscores my point on robust industry fundamentals.

The growth visibility for the remainder of 2014 and the next few years is strong on the back of firm contracts. These points make GasLog an attractive investment option at a time when the stock still seems relatively undervalued.

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Faisal Humayun

Senior Financial Analyst with eight years of industry experience

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