Model Portfolio
The model portfolio’s return is +33.62% YTD compared to +23.15% for the S&P500, and +71.61% versus +44.49% for the S&P500 since inception (September 2022). The model portfolio, as of Friday’s close, is as follows:
Now, let’s review the main developments among the companies in the model portfolio for the week:
Golar
Golar LNG reported total operating revenues of $65 million for the quarter, driven by FLNG rates that reached $89 million, slightly surpassing the $88 million from the second quarter. The company considers FLNG rates as the most accurate metric to measure all realized liquefaction revenues, including those generated from Hilli’s operations through oil and gas-linked rates.
Adjusted EBITDA totaled $59 million, remaining consistent with the previous quarter, which is noteworthy considering the recognition of some pre-operating expenses related to Gimi’s commissioning activities as it progresses towards its commercial operation date (COD).
Beyond the results themselves, which are not the most compelling aspect, several key figures at the close of Q3 reflect a solid financial position and ambitious expansion plans. With a market capitalization of nearly $4 billion, a cash position exceeding $800 million, and net debt of approximately $650 million, the company boasts an estimated EBITDA backlog of $11 billion, including the Pan American Energy contract in Argentina, but excluding commodity exposure from Hilli’s contracts.
The total project cost for the conversion and operational delivery of its FLNG is estimated at $2.2 billion, which may seem substantial but is the lowest figure among competitors when measured as $/mt of liquefaction.
In the third quarter, Golar LNG took a significant step in its expansion strategy by ordering its third FLNG unit, known as Mark II, with an annual liquefaction capacity of 3.5 million tons—representing a 70% increase in its own LNG production capacity. This project, slated for delivery in 2027, will be the first FLNG globally available for lease, positioning Golar as a key player in a market with growing demand. Golar LNG has outlined its priorities for 2025, focusing on strengthening its position in the liquefied natural gas (LNG) market. A key objective is to refinance the FLNG Gimi, which will enhance its financial structure and free up liquidity.
The company has also secured an option for a second FLNG Mark II, with possible delivery in 2028. Once both units are operational under 20-year contracts, they are expected to generate an aggregated annual EBITDA of approximately $515 million, excluding commodity exposure. Additionally, as part of the transaction with Pan American, Golar will acquire a 10% stake in South American Logistics, which will act as the offtaker and commercial arm for gas. This will add additional commodity exposure, complementing the liquefaction rate component of FLNG.
Its objectives for 2025 include finalizing the FID for Mark II in Argentina and, once these contracts are secured, exercising its option for a second FLNG Mark II, further expanding its floating liquefaction capacity.
This thesis has been defined by patience for several years, but finally, we are seeing all the pieces fall into place. Despite potential market volatility next year, I am confident that the company will be worth 60%+ more by 2026.
Warner Bros. Discovery
Warner Bros. Discovery has reached an agreement to extend its partnership with the NBA for another 11 years. In addition to continuing the content it has broadcast so far, the deal will expand coverage and introduce innovative content, including the airing of 13 college football games and 15 college basketball games. Sports remain one of the key drivers for retaining customers in the company’s traditional segment. While the economics of an individual agreement may vary in attractiveness, the overall impact on the ecosystem is highly positive.
Petrobas
Petrobras has unveiled its strategic plan for the next four years, which reflects a highly consistent approach compared to last year’s plan. This continuity, with minimal influence from the new leadership, helps clarify much of the uncertainty surrounding this investment opportunity. The presentation as a whole offers valuable insights into the potential of its assets and its initiatives to create value and generate returns across various business lines. However, we will focus on the elements with the most immediate and significant impact:
With reasonable assumptions about oil prices and refining margins, Petrobras expects to generate $200 billion in operating cash flow over the next four years. This cash flow will fund CAPEX (growth + maintenance) and, as usual, the company does not anticipate additional debt repayment but plans substantial shareholder distributions, implying a 17% annual yield. These distributions could increase if oil prices rise, with a sensitivity of ~$5 billion per year for every $10/bbl deviation.
Regarding CAPEX, of the $111 billion projected in the plan, only $16.3 billion is allocated to low-emission initiatives, which also include natural gas. This means the actual investment in low-emission projects is well below 10%, a seemingly reasonable figure.
Based on this investment plan, Petrobras aims to increase production from 4.1Mb/d to 4.5Mb/d, with oil contributing more than half of the increase.
The company has wasted no time implementing its strategy, announcing the distribution of 50% of this year’s extraordinary dividend that had not yet been paid. This will translate into an additional $0.53/share (4% yield) to be paid in January.
Dynacor Group
Dynacor Group has released its preliminary results for October, reporting revenues of $26.3 million (+25.8% YoY), driven by higher sales prices that offset lower volumes. Year-to-date, total revenues stand at $237.6 million (+15.6% YoY), positioning the company well to meet (and, in my opinion, exceed) its January guidance of $265 million to $285 million for the year.
Another good week of value creation by portfolio companies.
Disclaimer
LWS Financial Research is NOT a financial advisory service, nor is its author qualified to provide such services.
All content on this website and publications, as well as all communications from the author, are intended for educational and entertainment purposes only and should under no circumstances, whether explicit or implicit, be considered financial, legal, or other types of advice. Each individual should conduct their own analysis and make their own investment decisions.
