Cheniere Energy outlines big expansion plans for the future as LNG profit surges

Exporting plentiful US natural gas is proving highly lucrative for the company

Cheniere

We flagged Cheniere Energy (LNG:AMEX) on 3 March 2022 as a potential beneficiary of Europe’s need to wean itself off Russian gas as the LNG (liquefied natural gas) specialist increased its volume of exports. Cheniere buys natural gas in the North American market and transports it to two hubs on the country’s Gulf Coast where it is processed into LNG and loaded onto vessels.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

Our reasoning has proved sound even if the shares have retreated from the highs seen in the autumn as a mild winter in Europe meant gas demand was lower than expected. There is still a big differential between US gas prices and the rest of the world and this has positive implications for

Cheniere’s profitability.

This was reflected in better-than-anticipated fourth quarter results with earnings per share of $1.87 compared with the $1.72 pencilled in by analysts. Revenue for the period was also higher than the forecast $4.38 billion at $4.72 billion.

The company signalled its own expectations for lasting demand with plans for a 74% increase in capacity at its Sabine Pass plant by the end of 2030.

Jefferies analyst Sam Burwell says Cheniere’s first mover advantage ‘gives it a leg up in contracting and self-funding growth projects’.

He adds that this ‘should help sustain its position as the largest US liquefication player generating strong returns on capital and consistent cash flows’.

‘Helped by this virtuous circle, we believe Cheniere will be well positioned to return cash to shareholders through growth spending and commodity cycles,’ he concludes.

WHAT SHOULD INVESTORS DO NEXT?

Cheniere shares do not look overly expensive, trading on 10.6 times Jefferies 2023 forecast earnings per share of $14.70 and we think the longterm potential for the stock remains significant so keep buying.

While countries are looking to transition away from fossil fuels, natural gas and LNG will continue to play an important role. [TS]