Is it too late to buy Liquefied Natural Gas Limited?

On a four to five-year time horizon this business may have a long way to run.

Tom Richardson

Tom is a holder of the CFA Society of the UK administered Investment Management Certificate (IMC) and has more than a decade's professional experience in the investment management industry in Australia and the UK. Tom now works as a writer and editor for TMF Australia and has two easy to remember rules of investing he likes to follow. Avoid overpaying for growth stocks and avoid paying at all for stocks that are cheap for a reason. Tom prefers growth investing over value investing and says it's not rocket science, just avoid overpaying for the best returns.

Published June 11, 2014 1:28 pm AEST

Back in March Motley Fool writer Owen Raszkiewicz identified Liquefied Natural Gas Limited (ASX: LNG) as a top stock pick when it traded around $0.33c per share. Today it sells for $1.35 having hit a $1.67 last week meaning those who took his advice would be sitting on gains of more than 300% from their March investment.

Profit taking may have seen the price come off in the last week, but is there more to come from a business working hard to capitalise on the explosive growth in LNG export markets?

The company's flagship Magnolia LNG liquefaction project in Lake Charles, Louisiana USA, has plans to export 8 million tonnes per annum (mtpa) of LNG from 2018. Currently management is working towards necessary approvals and bankable contracts to complete before financial close in mid-2015.

The company's value should grow as it makes progress in clearing the significant regulatory, operational, construction and debt financing hurdles ahead, effectively de-risking as it progresses. There are two main Federal agencies that regulate LNG Projects in the United States. The Federal Energy Regulatory Commission (FERC) gives operational, safety and environmental approval for LNG plants and the company hopes to win approval for them around March 2015.

But, what set a rocket under the share price in May was news that the second relevant regulator, the U.S. Department of Energy, proposed changes to its procedures for processing applications to export LNG to non-Free Trade Agreement (FTA) countries. The market now appears to believe the company will receive approval to export its product to lucrative non-FTA countries, potentially within 90 days after winning the operational approval from FERC. Notably China and India are predicted to dominate future global LNG demand estimated at 400mtpa by 2020 alone.

The company is also in the very early stages of developing a 3.8mtpa LNG project in Gladstone, Queensland. However, investors' eyes are firmly fixed on the Magnolia Project potential for now.

Brokers have varying price targets on the business from $1.09 to $1.50 currently, but it seems if all the (significant) hurdles are cleared to achieve the 8mtpa export target, then the business may quadruple in value from $1.35 to more than $5 over a four to five-year time horizon.

Origin Energy Limited (ASX: ORG) and Oil Search Limited (ASX: OSH) are two others with big interests in the LNG export industry. But there are other industries and stocks to offer potentially serious gains.

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