Is Excelerate Energy a Must-Own Natural Gas Stock?

By Kirsteen Mackay

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As natural gas prices soar, investor interest in natural gas related stocks is mounting. Fresh from IPO, EE stock is one LNG stock to watch.

Excelerate Energy (NYSE: EE) went public last week in a much-anticipated IPO. The company provides floating liquefied natural gas (LNG) terminals. Its IPO saw the company list on the New York Stock Exchange under the ticker symbol EE.

On April 18, Excelerate Energy announced the closing of its IPO having received received net proceeds of approximately $416.2m. The company sold 18.4 million shares in the offering at $24 per share.

Russia’s war in Ukraine led many companies to postpone their IPO plans. But with natural gas surging to levels not seen in over 13 years, Excelerate Energy’s leaders may have thought it an opportune time to list.

What is Excelerate Energy

The Texas-based company was founded in 2003 by energy tycoon George B. Kaiser. And it now has offices in Abu Dhabi, Antwerp, Boston, Buenos Aires, Chattogram, Dhaka, Doha, Dubai, Manila, Rio de Janeiro, Singapore, and Washington, DC.

The company provides flexible LNG solutions to emerging markets. LNG is a welcome route to decarbonization, while also helping countries improve their economy and society.

2021 EE Financial Highlights

Last year Excelerate Energy generated revenues of $888.6m, net income of $41.2m and Adjusted EBITDAR of $291.1m.

Of these revenues, approximately 40% came from its North and South American operations, 35% from Asia-Pacific and approximately 20% from the Middle East and North Africa operations.

2020 EE Financial Highlights

In 2020, the company generated revenues of $430.8m, net income of $32.9m and Adjusted EBITDAR of $256.2m.

Is Excelerate Energy Profitable?

Excelerate Energy is a profitable energy company with a regional presence in eight countries. It operates several floating storage regasification units (FSRU) including the largest in Brazil. As of February 2022, the company operates ten purpose-built FSRUs.

It also leases an LNG terminal in Bahia, Brazil from Petrobras and in December 2021, started importing LNG and selling regasified natural gas to Petrobras.

Excelerate Energy’s regasification terminals integrate natural gas to power. The contracts are effectively long-term, take-or-pay arrangements, meaning they provide consistent revenue and cash flow.

The company also procures LNG from major producers and sells regasified natural gas through its flexible LNG terminals. 

Last year 47% of Excelerates revenues came from LNG and natural gas sales. The previous year it didn’t generated anything from this revenue stream because it was setting its sights on long-term sales contracts rather than short-term contracts or spot market sales. This strategy now appears to be paying off.

Embracing Opportunity

As the need for LNG accelerates around the world, Excelerate Energy is primed to deliver. Having grown its business in recent years it’s now established a significant portfolio. It also has plans to pursue new growth opportunities. This includes LNG-to-power projects and a suite of smaller-scale natural gas distribution solutions.

Excelerate Energy is currently developing a set of integrated LNG projects in Albania, the Philippines and Bangladesh. These projects are in advanced development.

It is also evaluating and pursuing over twenty additional early-stage projects with opportunities in the Middle East, Africa, Europe, Latin America and Asia.

Excelerate’s operations in Pakistan provide as much as 15% of the country’s daily natural gas requirements. Meanwhile, its projects in Bangladesh have increased the country’s natural gas supply by 20% to 30%.

Is EE Stock a Buy?

Excelerate Energy is a profitable growing business operating in an area of high demand. So does that mean EE stock is a buy?

At a glance, its financial metrics paint an expensive picture. Its price-to-earnings ratio (P/E) is 70, price-to-sales (P/S) is 3.3 and its EV-to-EBITDA ratio is 11.

However, this is clearly a growth stock with several income streams in operation and more in the pipeline.

This makes EE a risky but compelling stock purchase.

Risks to Investing in LNG stocks

Oil and gas stocks are volatile at the best of times but during war, a pandemic and global uncertainty they’re even more vulnerable to extreme volatility.

Therefore, although soaring natural gas prices may induce you to buy LNG stocks, it’s important to be aware of the risks. 

Excelerate Energy is currently benefiting from a rise in enquiries for its services as countries look to escape Russian dependence and find alternative sources of LNG. However, there are no guarantees this will lead to a lasting bump in revenues for the company.

Furthermore, Excelerate operates in some jurisdictions where it’s hard to gauge a clear picture of financial stability. For instance, the World Bank recently cut India’s forecast GDP as it battles rampant inflation and widespread unemployment.

Other inflationary risks include rising input costs to the business. For instance, it leases some of its vessels, but remains responsible for operation and maintenance of the vessel including crew, fuel and related expenses.

It also leases offices which can be variable.

Meanwhile, COVID-19 outbreaks are still causing disruption in parts of the world, further affecting the supply and demand of oil and gas.

Many people believe the transition to renewables is impossible without increasing the use of LNG.

Nevertheless, Denmark plans to phase out natural gas entirely, by quadrupling its production of solar and onshore wind energy within the current decade. While that’s an admirable goal, it may not be that easy for other countries to follow suit. Many believe LNG is critical to a lower-carbon future.

Even the most aggressive scenarios will not achieve the Paris Agreement’s goals without substantial growth in natural gas volumes, including LNG, through 2040.

Recent research by the US EIA shows domestic natural gas production fully recovered to pre-COVID-19 levels by early next year. Plus, the EIA expects US LNG exports to more than double between 2020 and 2029. This positive outlook complements Excelerate Energy’s outlook that global demand growth from developing economies is set to rise. In particular due to their search for affordable clean energy alternatives to coal. 

ONEOK (NYSE: OKE) and Enbridge (NYSE: ENB) are two more natural gas stocks you may like to consider taking a closer look at.

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In this article:

Topics:
Energy Equipment and Services
Oil and Gas Equipment and Services
Oil and Gas Storage and Transportation
IPO
Industries:
Energy

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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