Undervalued Industrial Innovators: The Case for Cool Company

The global LNG shipping sector is at a crossroads. After years of volatility, the market is poised for normalization in 2025 as new supply projects come online and vessel oversupply begins to correct. Yet, while many industry players grapple with the fallout of historically low charter rates and aging fleets, Cool Company Ltd. (CoolCo) stands out as a rare combination of strategic foresight, asset efficiency, and disciplined capital management. For investors seeking undervalued industrial innovators, CoolCo's unique positioning in the LNG sector offers a compelling case for long-term growth.

Strategic Leverage of Long-Term Contracts

CoolCo's fleet is anchored by a high proportion of long-term charters, a structural advantage in an industry where 85% of LNG carriers are locked into contracts of 20+ years. These agreements, often featuring “take-or-pay” clauses, provide a stable revenue stream even as spot markets fluctuate. In Q4 2024, CoolCo's adjusted EBITDA rose to $55.3 million, driven by cost savings and the majority of its fleet operating under long-term charters. This contrasts sharply with peers who are forced to navigate the brutal arithmetic of negative charter rates, where shipowners are paid to transport cargo.

The company's recent delivery of the Kool Tiger vessel under a 10-year sale-and-leaseback arrangement exemplifies its ability to secure favorable terms. While the vessel initially operated on spot voyages, CoolCo's proactive pursuit of a long-term charter underscores its agility in a rigid market. By aligning its asset base with multi-year contracts, CoolCo mitigates the risks of short-term market downturns while preserving liquidity—a critical differentiator in an industry where 30% of global LNG carriers are steam turbine vessels now languishing in idle fleets.

Asset Efficiency: A Competitive Edge

CoolCo's commitment to modernization is reshaping its cost structure and operational performance. The retrofit of the Kool Husky to LNGe specifications, including a high-capacity sub-cooler and air lubrication system, has already demonstrated measurable efficiency gains. These upgrades reduce fuel consumption and emissions, aligning with the International Maritime Organization's (IMO) decarbonization targets and enhancing the vessel's employability in a market increasingly prioritizing environmental compliance.

Industry benchmarks reveal a stark divide between older steam turbine vessels and modern LNG carriers. Steam-powered ships, which account for 39% of the global fleet, face higher operational costs and regulatory hurdles, with 66% needing to improve their Carbon Intensity Indicator (CII) scores. CoolCo's proactive approach to fleet renewal—upgrading the Kool Glacier and Kool Kelvin in 2025—positions it to outperform peers reliant on aging assets. The company's average Time Charter Equivalent (TCE) earnings of $70,600 per day in Q1 2025, while slightly below Q4's $73,900, remain robust compared to industry averages, which have been dragged down by spot market weakness.

Financial Resilience and Liquidity

CoolCo's financial discipline is another pillar of its undervaluation thesis. The company's $570 million reducing revolving credit facility (RRCF), extended to 2029, and $520 million term loan provide ample liquidity to fund strategic initiatives. By refinancing its debt and extending maturities, CoolCo has lowered its interest margin and secured flexibility to capitalize on market opportunities. As of March 2025, it holds $135.4 million in cash and has hedged 75% of its interest rate exposure, a prudent move in a high-interest-rate environment.

This liquidity buffer is particularly valuable as the LNG sector transitions. With U.S. Gulf LNG exports surging toward Europe and global production set to reach 600 million tons per annum (MTPA) by 2028, CoolCo's long-term charter strategy and modernized fleet are well-positioned to benefit from the eventual normalization of charter rates. The company's decision to forgo dividends in Q4 2024—prioritizing liquidity over short-term payouts—further underscores its focus on long-term value creation.

Market Dynamics and Investment Implications

The LNG shipping sector's challenges are well-documented: oversupply, geopolitical shifts, and the drag of inefficient older vessels. Yet, these same dynamics create opportunities for companies like CoolCo that are structurally prepared to outperform. As new projects such as Plaquemines and LNG Canada come online, the current vessel glut will abate, and demand for efficient, modern carriers will surge. CoolCo's retrofitted fleet and long-term charter portfolio place it at the forefront of this transition.

For investors, CoolCo's current valuation appears disconnected from its fundamentals. With a debt-to-EBITDA ratio of ~2.4x (well within investment-grade thresholds) and a fleet utilization rate of 88% in Q1 2025, the company is generating consistent cash flow while investing in growth. Its share repurchase program and interest rate hedging further enhance shareholder value, making it an attractive candidate for capital appreciation as the sector stabilizes.

Conclusion: A Case for Strategic Conviction

Cool Company is not merely surviving in a turbulent market—it is redefining the playbook for industrial resilience. By leveraging long-term contracts, modernizing its fleet, and maintaining financial flexibility, CoolCo has insulated itself from the worst of the industry's headwinds while positioning for outsized gains in the recovery phase. For investors with a medium-term horizon, the company's undervalued assets and disciplined strategy present a rare opportunity to capitalize on the next chapter of the global energy transition.

In a sector where the past few years have tested even the most seasoned players, CoolCo's approach offers a blueprint for sustainable industrial innovation. As the LNG market resets, those who recognize the company's strategic advantages today may find themselves well-positioned for tomorrow's gains.