Thoughts On NextDecade
I’m traveling in Italy and am not so distracted by the cultural and culinary delights to have overlooked the news on NextDecade (NEXT). I’ve watched the subsequent stock price fall with disappointment. They lowered EBITDA guidance on Trains 1-5 from $1.1BN (midpoint of prior $0.9-1.3BN) to $1BN, starting in 2030. Distributable Cash Flow (DCF) is estimated at $0.8BN according to Morgan Stanley, whose $15 price target is now $10.
The stock fell from $10.69 to $6.84 last week and is down 43% from its July 18 high of $12, ironically reached on the back of Morgan Stanley’s earlier upgrade. NEXT is a volatile stock, with no prospect of generating any cashflow for five years. It dropped 40% from its previous high of $9.43 in the Spring following Liberation Day and subsequently recovered.
This is not an investment for leveraged investors or for those seeking short term profits.
But $800MM of DCF in 2030 discounted to today at 15% pa is worth about $400MM, which is a multiple of around 4.5X on today’s $1.8BN market cap. This excludes any potential cashflow from further expansion of their Rio Grande LNG terminal, which we think is likely over the next couple of years, where their economics ought to be better than on Trains 1-5.
There’s a lot of optionality here.
NEXT is a cheaply priced investment with adequate compensation for the execution risk. It’ll remain a volatile stock and with a history of losing nearly half its market value at least once a year is not a holding for those who rely on skill at market timing.
We don’t count ourselves in that group and see attractive upside from here.
We have two have funds that seek to profit from this environment: