LHV Institutional 'Klaipedos Nafta (KNF1L LH) Annual Review, July 10th, 2020'

* Since the start of the Klaipeda LNG terminal operations in 2014, Klaipedos Nafta AB (hereinafter referred to as the ‘Company’, jointly with its subsidiaries referred to as ‘KNF’ or the ‘Group’) became a company of strategic importance for the energy security of Lithuania and the surrounding region, which ensures the import of liquefied natural gas (‘LNG’) into Lithuania and neighbouring countries. KNF also operates one of the largest and most modern oil terminals in the Baltic States, focusing on oil products transit and export services. Despite near term headwinds and considerable potential deterioration of the macro environment in the Baltic Sea region, largely reflecting the negative implications induced by the coronavirus outbreak, we keep our positive stance towards the Group’s medium and longer-term prospects.
* In valuing the shares of KNF, as usual, we are following two main valuation methods: 1) an income approach, mainly grounded on a value derived from the Discounted Cash Flow (‘DCF’) calculations and 2) a market approach. Under the market approach, we used the Guideline Public Companies Method (‘GPCM), based on multiples of a peer group of comparable listed companies. We have used the weighted average of values derived from the DCF and GPCM, applying different weights to each method. Given the broad spectrum of values derived from the peer valuation and a rather weak selection of regional peers, we see the income approach as more suited for the Group. Thus, we assigned a 70% weight to the DCF in the total value, leaving the peer valuation weight at 30%. Overall, based on our current projections for KNF and other assumptions, we decided to set a new fair value range (‘FVR’) for the Group at EUR 0.45-0.55 per share. As a reminder, due to heightened risks caused by the coronavirus situation and the changed FSRU lease-funding structure from 2020, we placed the stock under review on 23rd March 2020.
* This report contains a full set of financial forecasts and is useful for gaining an initial insight into the company. Please also refer to the tables and charts in the attachment.