Edison update on LNG ADRs

Back in the real world, objectivity remains prescient as Edison have issued the following brief update, albeit with a modest reduction to LNG's sp. Nothing new in this update of course, but a useful restatement of the obvious for those of a nervous disposition and whingers of apparent management largesse.

The Magnolia project has received two positive pieces of news in the last few weeks, which helps move the process towards project sanction and possible first LNG in 2022. The Department of Energy (DoE) has authorized non-FTA exports for Magnolia’s LNG, following a decision by US Federal Energy Regulatory Commission (FERC) to deny a rehearing on the Magnolia project requested by the Sierra Club. This is a big step as it allows for exports to all LNG markets globally including Europe, China and Japan. For the moment, we leave our valuation unchanged at A$1.3/share (falls slightly on an ADR basis to US$3.8), but note these announcements pave the way to signing offtake and financing agreements and project sanction in 2017/18.

Our valuation remains broadly unchanged after accounting for an increased share count and updated FX assumption. While it is clear that recent announcements move the project ahead, we anticipate increasing our chance of success (from current 60%) as the offtake agreements are signed and definitive steps are taken towards projects sanction. For the moment, our valuation falls slightly (1.5%) to US$3.8/ADR. We model first LNG in 2022, though this will be dependent on the timely progression of the project towards sanction in 2017/early 2018. This valuation has significant space to rise as the project is de-risked.

http://www.edisoninvestmentresearch.com/?ACT=18&ID=17749&LANG=

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