Liquefied natural gas (LNG) shipping stock GasLog Partners (GLOP) crashed today and lost a whopping 23% of value as of 10:15 a.m. EDT. Today's slump is even more pronounced given the stock's jaw-dropping rally this month: It was up 42.5% until July 26. Even as the company struggles with a heavy debt load, a sharp drop in revenue and earnings in its latest quarter is to blame.
Strong dividends are a master limited partnership (MLP) stock's biggest attraction as MLPs pass on the bulk of cash flows to shareholders in the form of cash distribution. Ironically, that's where GasLog Partners disappoints: The company decided to limit its quarterly cash distribution to only $0.01 per unit last year as it focuses on liquidity and a stronger balance sheet to ride through the challenges brought on by the COVID-19 pandemic.
To make matters worse, GasLog Partners reported a sharp drop in revenue and earnings for the second quarter this morning, triggering fear among investors about the company's future. Here are some notable numbers from the quarter:
- Revenue down 17% year over year.
- Adjusted net income down 50% year over year.
- Adjusted earnings per share down 74% year over year.
Consensus analyst estimates called for adjusted earnings of $0.24 per share, but GasLog Partners earned only $0.10 in Q2.
GasLog Partners transports LNG to oil and gas companies under multi-year charters. With three long-term charters with Royal Dutch Shell expiring in late 2020 and early 2021, GasLog Partners' revenues and profits were bound to take a hit.
On a positive note, GasLog Partners secured multiple new charter agreements during the second quarter, including:
- A one-year charter with TotalEnergies.
- An eight-month charter with Royal Dutch Shell.
- A one-year charter with Cheniere Marketing, a subsidiary of Cheniere Energy.
Earlier this month, GasLog Partners also chartered another vessel with TotalEnergies for roughly one year.
The thing is, all of these are short-term charters and were recontracted at considerably lower rates. GasLog Partners needs long-term charters to survive and thrive.
For now, its new charter agreements and the cash from operations that GasLog Partners generated during the first half of 2021 should be able to cover its estimated operating and administration expenses, as well as debt service requirements, through 2022. GasLog Partners, though, still had debt worth a staggering $1.26 billion as of June 30, 2021, and that's the biggest risk investors in the stock should be aware of.