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Market Price (11/3/2016): $36.62/share; ST-Target: $44/share; NIV: $163/share
Feels like LNG is blind man trying to figure out way to mountain top
In our opinion, Cheniere needs to 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 LNG (CCL), but we believe there is potential for third act involving E&P, pipelines or marketing and trading (M&T) or all three. We like that Cheniere is to roll-up CQH, and expect roll-up of CQP in long-term. We’re not positive on Cheniere venturing into liquids export and equally unenthusiastic about foreign ventures, although we’re now willing to give Cheniere benefit of doubt given Jack’s leadership and past track-record. We believe new Anadarko basin pipeline feels right, but mid-scale LNG plant feels wrong. Instead Chenier should focus on CCL 3 and even SPL 6, in our opinion. 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.