Stabilis Solutions: Sustaining Momentum Could Surprise Market

Stabilis Solutions, Inc. (NASDAQ:SLNG), a small-scale liquefied natural gas company that produces and distributes LNG to a number of end markets in North America, while also providing fueling services as well, is coming off record third quarter revenue, and if it can keep the momentum going over the next couple of quarters, it has a chance to break out beyond its 52-week high of $12.3199.

With the U.S. Department of Energy granting the company a 28-year export license to export LNG produced domestically, it will open up new markets for SLNG to battle for share in. And with recent geopolitical events associated with the conflict between Russia and Ukraine, LNG has been in hot demand, and that should translate to long-term growth in the sector, and SLNG has a very good chance of getting a piece of the action in the years ahead.

In this article we’ll take a look at some of the company’s latest numbers from its earnings report and break down some of catalysts that will determine the performance of the company going forward.

Latest numbers

Revenue in the third quarter was a record $25.8 million, up 46 percent from the $17.8 million in revenue generated in the third quarter of 2021. For the first nine months of the year revenue was $69 million, an increase of almost $21 million from the $48.3 million in revenue from the first nine months of 2021.

Net income was $1 million, a gain of $3.1 million from the net loss of $2.1 million in the prior quarter, and up $5.6 million from the net loss of $4.6 million in the same reporting period last year. Net loss in the reporting period was $0.3 million, Adjusted EBITDA in the third quarter was $2.3 million, compared to $1.4 million in adjusted EBITDA in the Q2 2022, and also $1.4 million in adjusted EBITDA in the third quarter of 2021.

At the end of the quarter the company had cash and cash equivalents of a little over $12 million, including $1 million available from its “advancing line of credit with Ameristate Bank.” While that’s an historically strong liquidity position for the company, I see it more of a weak spot for the company based upon it needs for more investing capital to drive sustainable growth.

Management said it has been in discussions with lenders in an attempt to “establish a more conventional credit facility, which will add additional liquidity as we continue to expand our business.” With some of the potential positive catalysts that could accelerate the company’s growth, I think how its negotiation with lenders is probably the most important of them all.

Probably the most significant thing about SLNG’s third quarter performance was it was accomplished in a typically slow quarter for the company, meaning, if it is able to continue to perform strong in the next couple of quarters, it could be a solid catalyst that could drive its share price sustainably upward, depending upon how its growing aerospace and marine bunkering businesses do, as well as if it starts getting business in the international markets.

Aerospace and marine bunkering

With SLNG working hard on organically growing its aerospace and marine bunkering businesses, which represent a combined global addressable market of over $15 billion, it is starting to pay off, as in the third quarter they accounted for 23 percent of total revenue.

That’s solid growth when taking into consideration the two categories only accounted for about 5 percent of total revenue in all of 2021. In the quarters ahead, aerospace and marine bunkering should be carefully watched by investors to see if the momentum continues.

One caveat there is the company needs to maintain growth in other categories in order to gain the leverage the two could add to its momentum, which would definitely support its share price, in my opinion.

Export license

In the reporting period the U.S. Department of Energy granted SLNG a 28-year export license for LNG that is produced domestically, with “a volume equivalent to roughly 52 billion cubic feet of natural gas annually across the globe.” That could be a significant game changer for the company if it’s able to move a large volume of LNG internationally.

Management noted that LNG export approval has “significant barriers to entry” and requires a lot of expertise. With its ability to aggregate LNG internally and externally via third parties, this represents an extraordinary growth opportunity for SLNG if it can execute.

Considering the demand for LNG in light of loss of gas supply in Europe as a consequence of the conflict between Russia and Ukraine, and it’s easy to see the long-term opportunity the export license represents for SLNG.

Conclusion

With all the potential positive catalysts the company has at this time, I maintain the most important is finding a way to improve its credit facility in order to invest in the assets in needs to take advantage of aerospace, marine bunkering and LNG exports.

Taking that into account, the company is coming off an excellent third quarter that has been historically slow, and if it can continue to grow its aerospace and marine bunkering businesses while driving some export sales, it’s positioned strongly for a nice run in 2023.

On the other hand, with expectations starting to rise, if it stumbles in any way and disappoints to the down side, its share price will take a hit. Even if it’s able to perform well in the above-mentioned categories, it still must continue to grow in other areas of the business to gain the full effect of the leverage now inherent in the opportunities that lie before it.

This is an important point in time for SLNG because it will determine whether or not it’ll be able to break through the $10.50 mark, which I consider to be the ceiling for the stock over the last 5 years. It has risen higher than that, but not sustainably.

If it can continue momentum and if it breaks through $10.50, I think it’ll be on its way to $11.00 and higher. And depending on the strength of its performance, it has to potential to sustainably move much higher than it has over the last 5 years.