Crown LNG: A Potential 10X LNG Stock?

Video: A review of a newly listed LNG stock.

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Transcript

Crown LNG is a newly listed de-SPAC that just combined with Catcha Investment Corp to list on the Nasdaq. The new ticker symbol is CGBS, and as I’m recording this, the stock was up 42% on July 12th.

In this video, we’ll discuss what this company does, potential issues they may have, and why it could be a 10-bagger in 3 to 4 years. And there’s justifiable math behind that; I’m not just saying it could be a 10-bagger for a clickbait YouTube title.

BP recently released its energy outlook report for 2024, and they expect demand for liquified natural gas to rise by up to 40% by 2030 compared to 2022 levels. The potential climate change benefits behind LNG and increased natural gas usage are leading to significant growth. Crown LNG is working toward playing a pivotal role in this market.

So, what does Crown LNG do?

They plan to build large liquefaction and regasification facilities for LNG. Liquefaction is the process that supercools LNG into a liquid, so it can be transported overseas. And then regasification is the process that turns that liquid back into a gas so it can be transported and delivered to consumers.

Plenty of companies do this, as we’ll discuss… the twist with Crown is that they plan to build them offshore, in harsher weather conditions than traditional LNG facilities.

And they’ve listed out the benefits of doing this:

• It takes less CAPEX to build offshore

• There’s no need to acquire land since the infrastructure is operating in the ocean

• It’s a shorter build time

• They’re safer since there aren’t any populated areas that could be affected by the infrastructure

• And they have the ability to move these facilities if they want to

• Crown unique position compared to floating slide (existing operators)

There are existing operators that provide offshore facilities, but they use floating-based infrastructure, which works well in more benign weather conditions. On the other hand, Crown is specifically focused on gravity-based facilities, which can survive harsher weather.

The only other company that has built a facility similar to what Crown is proposing is Adriatic LNG in Italy, which is owned by Exxon and Qatar Energy. But that proves this has been done before and that the technology works in this application.

One of the contractors that’s going to build Crown’s projects has built other oil and gas projects with gravity-based platforms since 1977, so they have around a 47-year track record building similar facilities.

Crown has partnered with Aker Solutions, who helped build the Adriatic LNG facility and has that long track record with gravity-based platforms. Crown is also partnered with Siemens Energy, and Wartsila Gas Solutions. So Crown has brought in some of the leading contractors and suppliers to build out their projects.

And getting into what their projects are, Crown has highlighted that it has a variety of opportunities to build facilities worldwide. The dark blue circles represent the most troublesome areas with tropical storms that can present issues for traditional infrastructure.

Crown’s SPAC transaction raised the company $50 million, which brought $40 million to the balance sheet after $10 million was spent on finalizing the SPAC deal.

That $40 million is expected to bring their two anchor projects to their FIDs, or final investment decisions.

Their first project is going to be a more traditional floating storage regasification unit in Grangemouth, Scotland. Crown is targeting a final investment decision by the third quarter of 2024. First gas tolling is expected to occur in the first quarter of 2027. 

The second project is in Kakinada, India. Crown is targeting an FID by the third quarter of 2025, with first gas-tolling revenues to come in by the first quarter of 2028.

We’ll talk about the economics in a second, but taking a look at this funding slide again, we can see that the project in India needs another $34 million in capex, and the project in Scotland needs another $6 million. So, that’s how we get to FIDs for both of these projects with the capital they already raised.

Reviewing the economics of these projects, we’ll start with Scotland. They have an agreement in place with a nearby power plant being developed by GBTron, which should be online by 2030. So that is taking up 40% of the potential volume. But the UK National Grid and other end customers will have the other 60% of potential capacity.

In this project, Crown will charge a tolling fee every time a customer wants to use their regasification facilities. This could total up to $276 million in annual revenues by 2030, and potentially even earlier, as Crown can bring on additional capacity with spot contracts until GBTron is ready. $166 million of the revenues generated will ramp up by 2027.

As for the project near India, Crown is in advanced discussions with Indian regasification customers to sign long-term agreements for terminal use. In total, Crown expects the project to generate $286 million in annual tolling revenues

60% of terminal capacity will be reserved for strategic customers, 25% will be for private enterprises, and 15% will be used for shorter-term contracts, as negotiated by regulators.

Once projects reach that final investment decision, Crown estimates they’ll tend to take around 3 years to build. The project in India will take around 6 months longer than the project in Scotland, according to the company’s estimates.

Crown has provided illustrative financial assumptions for both of these projects. In total, the company plans to raise around $1.5 billion to cover capex in both regions. The funding mixture will consist of 80% debt and 20% equity financing. So, the company plans on selling 25% of the ownership in their projects for some of the additional funding required.

Crown emphasized the use of TUAs, or long-term Terminal Use Agreements, to ensure that the projects are bankable, so banks would be willing to debt finance Crown’s operations.

With an expected EBITDA of $395 million in 2028, taking 75% of that figure would peg Crown with approximately $296 million in EBITDA.

Comparing the forward EBITDA multiples of their peers, around 8 to 10x, let’s just say that Crown will get 10x for simplicity…

Then the company would be trading at around $3 billion in market cap. Given Crown’s market cap of $235 million as I record this video, the stock would be a 13-bagger, 4 years from now.

With that said, here’s where I get into my problems with this company. And it’s not really with the company itself, they’ve laid out about as solid of a plan as you’ll get, but it’s just with the situation in general.

Let me explain what I mean.

I have a problem with all large infrastructure companies like this, capex-intensive industry. It’s incredibly likely that these projects could be delayed or significantly overrun on costs. Of course, it’s not guaranteed to happen, but it wouldn’t be a surprise if it did.

We just saw this happen with the Golden Pass LNG project in the US, which is backed by Qatar and ExxonMobil. That project has seen over $2 billion in additional costs, and the contractor working on it, Zachry Industrial, was forced to declare bankruptcy.

According to Reuters, labor costs on these LNG job sites have increased as much as 20%. So, what happens if Crown runs out of money? It’s something to consider.

Not just that, but investors would need to wait, at the very least, 3 to 4 years for any revenues to be generated. That’s assuming there are no delays. Yet again, significant opportunity costs, which could certainly be worth it for a 13-bagger, but the risk is there.

Risk that I see no reason to take, when another company I already own, Abaxx Technologies, is a less direct, but still significant beneficiary of increased demand for LNG. They operate an already launched commodity exchange, which is in the process of ramping up trading volumes on their LNG, carbon, and nickel futures contracts.

Abaxx is significantly less capital-intensive as a business, and could have just as great, if not better upside over the next few years, as I laid out in an over 30-page long write-up I made about the company on Substack. I’ll link that post in the description, if you want to check that out.

Of course, I’m not here to provide financial advice, but I personally see no reason to buy Crown LNG because Abaxx is the better, and less risky opportunity.

In addition to my write-up, I’ll also link to the previous video that I made on Abaxx talking about the launch of their commodity exchange. Look into that if you’re interested, and thanks for watching.