Citi Backs Centrica's £1.48 Billion Grain LNG Terminal Acquisition

Strategic Insights -

Citi has strongly endorsed Centrica's acquisition of a 50% stake in National Grid's Grain liquefied natural gas terminal, deeming the deal a "good value" for the UK energy company. The £1.48 billion purchase, valued at £1.1 billion in project finance and £200 million in equity, is expected to generate £100 million in annual earnings for Centrica, including contributions from a new storage tank set to be operational by the end of this year. Citi views the acquisition as a complementary addition to Centrica's existing UK strategic gas assets, highlighting the terminal's long-term contracted revenues and potential efficiency gains.

Key Takeaways:

  • Centrica will acquire a 50% stake in National Grid's Grain LNG terminal in a joint venture with Energy Capital Partners, valuing the asset at £1.48 billion, including debt.
  • The UK energy group expects to generate £100 million in annual earnings before interest, tax, depreciation, and amortisation (EBITDA) from its share, including contributions from a new storage tank.
  • The deal will be funded with £1.1 billion of non-recourse project finance and £200 million of equity for Centrica's share.
  • Citi calculated the purchase price at roughly 7.4 times EBITDA, noting the terminal's long-term contracted revenues.
  • Grain is fully booked until 2029, more than 70% contracted until 2038, and over 50% contracted until the mid-2040s.
  • The acquisition complements Centrica's existing portfolio of UK strategic gas assets, including the Rough gas storage site and the Morecambe gas field.
  • Citi expects the deal to be earnings accretive from completion.
  • Citi retains a "neutral" stance on National Grid stock.
  • Centrica switch to "buy" with a £1.85 target price.

Statistics:

  • £1.48 billion: Value of the acquisition, including debt.
  • £1.1 billion: Non-recourse project finance funding the deal.
  • £200 million: Equity funding for Centrica's share.
  • £100 million: Expected annual earnings before interest, tax, depreciation, and amortisation (EBITDA) from Centrica's share.
  • 7.4: Purchase price multiple of EBITDA, calculated by Citi.
  • £0.168: Current share price of Centrica.
  • 50%: Stake acquired by Centrica in National Grid's Grain LNG terminal.
  • 2029: Current end-date for Grain's bookings.
  • 2038: Year to which over 70% of Grain's contracts extend.
  • Mid-2040s: Year to which over 50% of Grain's contracts extend.

Sources:

  • "Citi backs Centrica's £1.48 billion Grain LNG terminal acquisition" (financial news article, date not specified).