Update on Cool Co (2024)

Investment Analysis Clubs Value Hounds
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About a year ago, I posted on Cool Co (CLCO) Q1 2023 results - its first quarterly report after the company’s listing on a US exchange. I also mentioned in that post that I had taken a small position in CLCO. (More on this later).

So what’s been happening at Cool Co in the last year?

  1. Exercised option on 2 LNG newbuild tankers
  2. Continued operating their existing fleet of 11 LNG tankers (maintained a 41c quarterly dividend)
  3. Recently secured a long-term contract (14 years) for one of the newbuild tankers, This adds significantly to contract backlog and charter years.
  4. Plan upgrade of 5 TFDE-powered vessels (at least one in 2024)
  5. Updated and upsized financing of existing facilities and secured financing for the two newbuilds (Sale and Leaseback deals for the latter)
  6. Ship management revenue declines (was about 10 - 11%, but dropped to about 5% in Q1 2024 due to managing fewer third party vessels)

CLCO announced Q1 2024 results on 05/22/24.
Decent results, shares bounced, HohumYNWA sold some of his CLCO shares (the shares acquired 13.5 months ago).

Huh?
Well, since April 2023 I continued to build up a position in CLCO in taxable ac and Roth ac. Even in 2024, when the position went negative, I continued to add. Actually, for most of 2024 the CLCO position (excluding div) was negative. On the CLCO bounce, the initial shares moved positive and I thought it was a good time to monetize on the initial shares. With capital gains, no worries about wash sales or disallowed losses. Secondary impact - sale of higher priced shares means cost basis moves lower.

Operationally, CLCO has some smaller challenges in Q2 & Q3 2024. One vessel has gone for its dry docking in Q2, and three more vessels will head for drydocks in Q3, including one with a sub-cooler upgrade. I believe, one vessel rolls off charter prior to dry dock. Again, small challenges that probably rocks the boat slightly. CLCO having already looked and planned ahead on the financing end should not have too many concerns.

CLCO’s value should increase quite a bit when the newbuilds join the fleet during the second half of 2024. The fact that one of those vessels already has a nice long charter upon delivery is a major plus (CLCO didn’t specify the rate, only that firm charter backlog increased to $1.2B). A data-point I gleaned from skimming the CLCO 2023 Annual Report - the two existing Sale & Leaseback deals will only cost $71M each in Jan 2025.

Most of my gain from the recent sale of CLCO shares came from the CLCO dividend. How safe is the dividend? The dividend has only been in place about 5 quarters. The last payout was about 63% of net income.
CLCO have already shared Q2 rev projections being 4.5% - 5% lower.

[Edit: The recently announced Q1 2024 payout is 63% of net income. The prior payout was closer to 100%. Probably multiple factors involved, but one factor is interest on one loan facility is bi-annual, Q2 & Q4. Hah! Another point to my sell decision]

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In the OP, I made a comment on value growth when the newbuilds deliver. But, it isn’t just the newbuilds. Just realized that CLCO had a slide in their Q1 2024 presentation deck that captures a personal observation.

Slide 6 details the major acquisition & sale events in CLCO’s brief history.
As Golar Seal was the oldest of the original vessels acquired to establish CoolCo. The transaction illustrates the narrative that the original fleet was acquired at a discount. The newbuilds gain in value shows in the third graphic. What about the four vessels acquired in the middle transaction?
I would argue those are also undervalued on the books. CLCO paid $660M for the four vessels (including $500M in financing). But two of the vessels are 2-stroke/X-DF propulsion vessels that delivered in 2020 & 2021. IMO, I would value those 4 LNG tankers @ $720M - $770M

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09/15
CoolCo (CLCO) announced Q2 2024 results on 08/29/24. So, this is a subsequent update to the update

  • Average TCE (Time Charter Equivalent) of $78,400 daily
  • Rev of $83.4M
  • Net Income of $26.1M
  • Maintained div of 41c/sh
  • Vessel with a market-related charter rate expired. Vessel has subsequently secured a 1-year fixed rate charter
  • Some additional clarity regarding revenue regarding rev, charters and vessel dry-docks (Slide 9). If CLCO are guiding rev higher in Q3 (even with all the dry-dock days), the two market related charters must have been a significant damper to the TCE average. CLCO should also see a lower financing amount in Q3.
  • If I follow the bar charts (Slide 12), CLCO are including the options in the backlog total ($1.8B). Other entities usually report two numbers - firm contract, plus options. The contracted figure appears to be around $1.2B
    CLCO has good coverage in 2025 - 80% (A good chunk of the 2025 % gap is likely the uncontracted newbuild)
  • Speaking of the newbuild, CLCO have a separate slide discussing the merits of a newbuild delivering in Oct 2024 (Slide 8).

Consistent with the OP, I am sharing my own CLCO positioning. When I made my initial CLCO investment, it was in my taxable ac. Subsequent purchases were made in either the taxable ac or in my Roth ac. At this time, I do not have a CLCO position in my Roth ac. My only CLCO stake is in my taxable ac, and trading slightly red (excluding the dividends).

I do think CLCO is currently priced below NAV. And this will be even more the case when the newbuilds deliver. That said, with my CLCO position slightly red, I still want a discount to rebuild my CLCO position and/or reset my basis. CLCO trades around $11.15, and I would get interested $10.50 - $10.75, or lower.

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