A bit of background
Last summer, we decided to sell all our shares of Enagas and we reinvested the money in Cheniere. Since then, Cheniere stock has appreciated around 30% and Enagas shares have declined 10%. Both companies have similar characteristics as they are in the business of LNG. Enagas owns the pipelines to transport natural gas. Cheniere has the liquefaction facilities which allow natural gas to become LNG to be transported in vessels. Nevertheless, it is important to understand that they are in different moments in the life cycle of a company. Cheniere is growing and Enagas it is not.
Enagas is a traditional utility. In the last 15 years, it expanded heavily in Spain. However, it also grew in other Latin-American countries, the US (Tallgrass) and Europe (TIP, Sweden). Its share price and dividend per share grew more than 100% in the last 10 years.
However, two things happened in the last years. Its possibilities of growing in Spain became very limited as the network was already developed, so they needed to look for investment outside. Second, a new law regarding Enagas revenues was approved for the period 2021-2026. It will limit the revenues that Enagas obtains from its regulated business in Spain (80% of its revenue) up to 30% in 2026. In addition to that, in 2020 the government ruled that Enagas cannot make a new foreign investment without its approval.
As a result of all of this, Enagas is paying a dividend over 100% of its pay-out. Moreover, its possibilities for expansion are very limited.
By contrast, Cheniere is a company which is growing at a fast pace. It is developing its sixth train in Sabine Pass and its third train in Corpus Christi which is about to enter in operations. Moreover, Cheniere will take the FID about if building a new set of trains in Corpus Christi in 2021.
Cheniere revenues are long-term contracts for 20-25 years and it has created a “marketing” division which had acquired several vessels to sell LNG on demand. Currently, it is not giving dividend as it is using that money to repay debt and CAPEX. However, they probably will start paying some dividend in 2021 when the third train of Corpus Christi begins operations.
Overall, the revenue of Cheniere is set to continue increasing the next 5 years due to the increase in liquefaction thanks to the new trains they are building. After that, it is quite easy to think about a natural international expansion by doing something similar to New Fortress.
Building a portfolio
An investment in these companies cover specific necessities in the portfolio, we are talking about medium cap companies in the infrastructure business. By definition, they tend to be much more stable than other investments. But always is better to make some money in addition to have a stable investment, and that it is the reason we prefer Cheniere over Enagas.
We will publish more reports about investment decisions we have made. You can leave a comment if you are particularly interested in a specific company of our portfolio.
Note: Obviously, this is not investment advice, we are only expressing our views about a decision we made.