Why the Recent Dip in GasLog Shares Is a Buying Opportunity

GasLog (NYSE: GLOG  ) shares have come under pressure recently, as the news of the recent transaction between Teekay LNG Partners (NYSE: TGP  ) and BG Group (NASDAQOTH: BRGYY  ) raised growth concerns among investors. I will get to the details of the transaction and why I think the deal was not for GasLog later, but let's first take a look at GasLog and why I think the company stands to benefit from the liquefied natural gas (LNG) boom.

Excellence in operations
GasLog, a growth-oriented international owner, operator, and manager of LNG carriers, offers favorable exposure to the positive long-term demand fundamentals of the global LNG market. The company's fleet of 22 high-spec LNG ships offers solid earnings growth and highly visible cash flows over the next few years. 

GasLog has established itself as one of the most reliable operators of LNG vessels and is often the first call of charterers. This standing in the industry gives the company access to long-term contracts. With the growing number of liquefaction and regasification facilities, demand for seaborne cargoes is expected to remain strong and GasLog, with its reputation for highest operational standards and technical reliability, should be one of the primary beneficiaries of this trend. 

Modern high-spec carriers chartered with blue-chip counterparties
GasLog owns 22 modern high-spec LNG carriers, including nine newbuilds expected to be delivered in the next three years (2015-2017). The company's newbuild fleet is equipped with tri-fuel diesel electric propulsion, giving the ships lower fuel consumption than older fuel systems. Sixteen of these vessels are already contracted to BG Group and Shell for an average period of over six years, proving a stable and secure stream of growing cash flows.

GasLog Fleet (Source: company presentations) 

Expansion into new markets
GasLog is also looking to expand into new markets where it can leverage its operational expertise. One such market is Floating Storage Regasification Units (FSRU). The lucrative FSRU market could represent a natural progression from the current LNG shipping activities. 

FSRUs have similar operating requirements to LNG carriers, where charters place a high value on flawless operation. GasLog could leverage its reputation for operational excellence in this space to bid for the few available contracts.

Teekay LNG-BG Group deal
As I mentioned earlier, GasLog shares have come under pressure recently, as the news of the recent transaction between Teekay LNG Partners and BG Group raised growth concerns among investors.

Teekay LNG Partners agreed to a deal to acquire ownership interests in four 174,000-cbm LNG carriers from BG. The four ships are being built at China's Hudong-Zhonghua Shipbuilding and are expected to be delivered between 2017 and 2019. 

Some investors may have been spooked by the news, but I don't think the deal between Teekay and BG will hurt the growth potential of GasLog. The deal between Teekay and BG focuses on newbuilds, and it doesn't cover the four Tri-Fuel Diesel Electric (TFDE) carriers currently in BG's fleet. These four vessels remain a sale/lease back opportunity for GasLog.

The deal also shows that GasLog doesn't have a monopoly on BG's business. But this has never been the case; BG also does business with Dynagas. I think in the long term there is enough growth potential for all independents, including GasLog.

Was the Teekay transaction right for GasLog?
There are a number of reasons why I think the Teekay-BG transaction was not right for GasLog. First of all, the Teekay deal is only for minority stake in the vessels. Teekay acquired a 30% ownership in the first two vessels and a 20% ownership stake in the remaining two vessels. GasLog has shown little interest in minority ownership agreements since its IPO.

Secondly, each vessel will operate under 20-year charter contracts, which are longer than anything in the GasLog charter portfolio and outside of its 5-7 year focus. Lastly, the newbuilds are from a Chinese yard and may be more susceptible to cost overruns and timing delays.

Foolish takeaway
GasLog shares have come under pressure recently, likely due to concerns that a recently announced transaction between Teekay LNG and BG Group would impact the growth prospects of GasLog. However, I believe this is not the case. Firstly, the growth of LNG shipping is much larger than the announced four carriers deal. Secondly the deal doesn't cover the four TFDE currently in BG's fleet.

Lastly, and most importantly, I believe GasLog, because of its reputation for having the highest operational standards and technical reliability, will be the primary beneficiary of the positive long-term demand fundamentals of the global LNG market.

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