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Market Price (5/5/2016): $34.11/share; ST-Target: $29/share; NIV: $153/share
LNG: Revelations little; uncertainty great; strategy mystery
In our opinion, Cheniere should buy back all CCH HoldCo II Convertible Senior Notes (CCH Holdco 2 Convertibles). We don’t like complexity and dilutive effect on equity. We believe Sabine Pass LNG (SPL) is not the end, but should’ve been only first of three acts, the second which is Corpus Christi Liquefaction (CCL), but we believe there is potential for third act involving E&P, pipelines or marketing and trading (M&T) or all three. We look for Cheniere to roll-up CQP and CQH in long-term. We’re not positive on Cheniere venturing into liquids export and equally unenthusiastic about foreign ventures. We would like CCL 3 and even SPL 6 to have more merchant exposure. We believe that there are better ways to finance expansion program, but, long-term, company faces under-leverage problem. We’d like Cheniere to take excess cash flow to pay dividend after rolling up CQH and CQP and after its third act. Though loose now, we expect global LNG markets to tighten and expect Europe to continue to migrate towards hub pricing/trading, and Asia to start hub pricing/trading.