Company Reports

Befitting its private equity roots, New Fortress Energy seeks to provide an integrated solution for certain regions that lack where cheap, reliable, and efficient sources of power are scarce, primarily by providing gas or liquified natural gas solutions. It has been reasonably successful at identifying and acquiring infrastructure in countries such as Jamaica or Brazil that are very underutilized because of existing market challenges or relative geographic isolation, and using them to supply gas to the country, often displacing far more expensive and less reliable sources of power.

No-moat New Fortress Energy reported fourth-quarter results and provided updates on its major projects, resulting in no change to our fair value estimate of $39. Our view is that New Fortress is showing some fundamental profitability but with warning signs flashing. Management chose to focus on some milestones, namely the receiving terminals in Puerto Rico and Brazil. While these are important and represent excellent growth opportunities, we view the lack of supply growth to feed these terminals as far more important, given that the company already has more capacity than it can fill.

Befitting its private equity roots, New Fortress Energy seeks to provide an integrated solution for certain regions that lack where cheap, reliable, and efficient sources of power are scarce, primarily by providing gas or liquified natural gas solutions. It has been reasonably successful at identifying and acquiring infrastructure in countries such as Jamaica or Brazil that are very underutilized because of existing market challenges or relative geographic isolation, and using them to supply gas to the country, often displacing far more expensive and less reliable sources of power.

For New Fortress Energy, 2023 has been filled with significant wins. The team appears to have closed out the year with one of the most significant deals yet that raises our fair value estimate to $39 per share from $30. At current prices, we now view shares as fairly valued. Our no-moat rating is unchanged. Unlike the Pemex deal, the deal with Brazil is significant. It should bring in material cash flows, about $280 million a year for 15 years beginning in 2026, without much in ongoing costs after spending $800 million to expand its existing power generation and import capacity over the next two years. By the time the contract is expected to come into force in 2026, we forecast the debt/EBITDA ratio will be below 3 times, which will still allow New Fortress to contract with large liquefied natural gas providers for larger volumes.

Befitting its private equity roots, New Fortress Energy seeks to provide an integrated solution for certain regions that lack where cheap, reliable, and efficient sources of power are scarce, primarily by providing gas or liquified natural gas solutions. It has been reasonably successful at identifying and acquiring infrastructure in countries such as Jamaica or Brazil that are very underutilized because of existing market challenges or relative geographic isolation, and using them to supply gas to the country, often displacing far more expensive and less reliable sources of power.

After speaking with the team at New Fortress Energy, we are raising our fair value estimate to $30 per share from $29 with no change to our no-moat rating. The increase has been driven primarily by our reevaluation of the Floating Liquified Natural Gas (FLNG) terminal unit economics, namely the costs associated with supplying the terminal based on Henry Hub benchmarks. However, this improvement has been almost completely offset by the increased financing costs.

Befitting its private equity roots, New Fortress Energy seeks to provide an integrated solution for certain regions that lack where cheap, reliable, and efficient sources of power are scarce, primarily by providing gas or liquified natural gas solutions. It has been reasonably successful at identifying and acquiring infrastructure in countries such as Jamaica or Brazil that are very underutilized because of existing market challenges or relative geographic isolation, and using them to supply gas to the country, often displacing far more expensive and less reliable sources of power.

In its third quarter. New Fortress Energy highlighted a series of encouraging developments focusing on a new push of investment in its terminal infrastructure and deleveraging as well as updating on its contracting status, with 90% of its 2024 volumes secured and guiding volume increases for 2024 and 2025. Even so, we have slightly reduced our fair value estimate from $30 to $29 per share because we expect reduced total volumes delivered in 2023 and to reflect increased capital spending activity. Our no-moat rating is unchanged.

Befitting its private equity roots, New Fortress Energy seeks to provide an integrated solution for certain regions that lack where cheap, reliable, and efficient sources of power are scarce, primarily by providing gas or liquified natural gas solutions. It has been reasonably successful at identifying and acquiring infrastructure in countries such as Jamaica or Brazil that are very underutilized because of existing market challenges or relative geographic isolation, and using them to supply gas to the country, often displacing far more expensive and less reliable sources of power.

After speaking with New Fortress, we’ve made several updates to our model. Our fair value estimate is unchanged at $30 per share, as both positive and negative changes offset each other. Essentially, our near-term forecast is lowered while our expected returns have improved over the medium term. Our no-moat rating is also unchanged. While our fair value estimate is unchanged, we think the updates better position New Fortress over the long run to more efficiently utilize its terminals and ultimately obtain more lucrative power contracts with energy-insecure countries. We still estimate about two thirds of its terminal capacity is not utilized in 2026, so there’s plenty of room for further growth if New Fortress can acquire the needed liquefied natural gas, or LNG.

Befitting its private equity roots, New Fortress Energy seeks to provide an integrated solution for certain regions that lack where cheap, reliable, and efficient sources of power are scarce, primarily by providing gas or liquified natural gas solutions. It has been reasonably successful at identifying and acquiring infrastructure in countries such as Jamaica or Brazil that are very underutilized because of existing market challenges or relative geographic isolation, and using them to supply gas to the country, often displacing far more expensive and less reliable sources of power.

While the REPowerEU plan laid out numerous goals across multiple end markets for eliminating the use of Russian pipeline gas, the European Union has no such plan for Russian liquefied natural gas, which we think will come as a surprise to investors. The EU has reduced Russian pipeline gas imports by over 80% in a very short time, but Russian LNG imports have surged recently and now make up 50% of overall Russian gas imports to the EU. Continuing to increase the use of Russian LNG threatens to undermine the gains and goals achieved via the REPowerEU plan in reducing the use of Russian pipeline gas imports.

We are initiating coverage on New Fortress Energy with a $30 per share fair value estimate and a no-moat rating. Shares are about fairly valued currently; however, they tend to be volatile alongside global LNG prices, so we would suggest investors wait for a better entry point.

Befitting its private equity roots, New Fortress Energy seeks to provide an integrated solution for certain regions that lack where cheap, reliable, and efficient sources of power are scarce, primarily by providing gas or liquified natural gas solutions. It has been reasonably successful at identifying and acquiring infrastructure in countries such as Jamaica or Brazil that are very underutilized because of existing market challenges or relative geographic isolation, and using them to supply gas to the country, often displacing far more expensive and less reliable sources of power.