GTLS
Equipment Supplier Makes Key Components For World's LNG Plants
Thursday April 3, 6:12 pm ET
Marilyn Alva
Where a liquefied natural gas plant is on the rise, there's a good chance an industrial equipment supplier based in Garfield Heights, Ohio, will have a bit part in the production.
That supplier, Chart Industries (NasdaqGS:GTLS - News), makes specialized gear for LNG plants, including heat exchanges, cold boxes and pipes.
LNG operations are under way or in the planning stages all over the world so that gas found in remote areas can be brought to places that need it the most, such as the U.S. and China.
"Dozens of terminals will be built over the next five years, everywhere from Papua New Guinea to Norway," said Jeffrey Spittel, an energy analyst at Natixis Bleichroeder. (Natixis has provided investment banking services to Chart.)
And that's just on the supply side, where found gas is turned into liquid so that it can be shipped in tankers to distant ports. Terminals on the receiving end change the liquid back to gas through a re-gasification process.
Up to a third of Chart's revenue typically comes from LNG projects, and it's one of Chart's fastest-growing businesses. Worldwide LNG capacity is growing in the midteens, Spittel says.
Key Customer
Chart is one of a handful of major suppliers for LNG buildouts. One of its key customers is Bechtel, the big engineering and construction firm that builds LNG plants with ConocoPhillips (NYSE:COP - News).
"If you see Bechtel win an award, then it's only a matter of time before Chart announces an award," said analyst David Anderson of UBS Securities.
It's not a smooth-flowing business, however. LNG construction delays are common.
While Chart's work in other areas such as the industrial gas market might not grow as fast, it helps smooth some of the lumps in the LNG business.
"We've been concerned about backlog risk due to delays in the LNG market," Anderson said. "But they have been able to get backlog from other sources, such as ethylene and gas processing facilities."
Chart specializes in two markets: natural gas and industrial gas. The industrial gas business is Chart's largest, making up 48% of sales. The company makes products for large air-separation plants that are used in producing steel and other metals for petrochemical plants, making ammonia for fertilizers and in food processing.
A slowdown in the industrial gas market in the U.S. and Europe can be offset by strong growth in fast-developing markets elsewhere in the world, says Chief Executive Sam Thomas.
China, India and other industrializing nations will need gas processing technology and distribution and storage components as their economies continue to grow -- all things Chart has a hand in.
Chart provides products for emerging clean-coal production. It also generates revenue from supplying gear for biomedical storage systems and liquid oxygen tanks.
Overall sales in the fourth quarter grew 26%, to $187.7 million. Sales in Chart's energy and chemicals division were up much more, by 61% to $84.9 million.
Earnings jumped 73% to 57 cents a share, beating Wall Street's estimates by 16 cents.
Future bookings look strong. Orders jumped 66% to $118.8 million, thanks to big-ticket items such as a large ethylene cold box in the Middle East and large aluminum heat exchanges for air-separation plants in China and Southeast Asia.
Year-end backlog in the energy and chemicals division stood at a record $358.8 million, up 73% from the end of 2006. Total confirmed backlog was $475 million, up 49% from 2006.
The firm backlog includes about $170 million in contracts for two LNG projects, $100 million in distribution and storage tanks, and $100 million for natural gas processing and petrochemical projects, Thomas says. The balance covers supplies for coal gasification, steel mills, air-separation plants and biomedical use.
Analysts like the mix.
"We have a lot of confidence in the industrial segment to begin with, and I'm a big believer in energy infrastructure spending," said Anderson, of UBS.
Revenue from LNG contracts is booked as Chart meets certain manufacturing milestones. For example, Chart landed a $130 million order last year from Energy World for a large LNG project in Indonesia that it expects to deliver in early 2009.
It recently started $40 million in work for an LNG operation to be built in Angola by Bechtel in cooperation with ConocoPhillips.
"There are (plans) to build another 15 to 20 LNG plants over the next five to 10 years," CEO Thomas said. "We would hope to participate in 30% to 40% of them."
The once-wary Anderson upped his forecast on Feb. 29 after Chart reported earnings, telling clients "risks fade and outlook brightens ... the company has turned the corner."
Field Installation Work
One of the risks that faded involved two nagging energy and chemical projects that had reduced Chart's expected profits on and off for 18 months due to cost overruns. In addition to providing equipment, Chart atypically took on field-installation work at a fixed cost.
During the fourth-quarter conference call, Thomas said that work on the troublesome projects was "substantially completed." He vows to stay away from such non-core field installation work in the future.
Chart is certainly no stranger to troubles. In 2003, the company filed for reorganization under Chapter 11, emerging several months later with a new management team led by the current CEO.
Private equity firm First Reserve, which had acquired Chart in 2005, took it public in 2006.
"It's a maturing company," Anderson said. "They've been moving through their growing pains."
Management expects sales of $730 million to $765 million in 2008, up from $666.4 million in 2007.
Analysts polled by Thomas Financial expect earnings to jump 45% this year and 26% in 2009. |
