Muddy Waters Tweets Golar Research (GLNG & GMLP)

Last week renowned short sellers Muddy Waters Research tweeted an interesting research report on Golar LNG Limited (GLNG) & Golar LNG Partners LP (GLMP). The research from an anonymous source was extremely bearish, claiming both stocks should be trading at 20% to 50% of their current values.A couple of days later Muddy Waters Research tweeted out a link to a bullish report by research house Unit Economics, defending both companies.Muddy Waters Research has no position.

The structure of these companies reminds me of the Macquarie Bank Model. Macquarie sources assets (toll roads, airports etc) and spins them off to Satellite companies. Macquarie collects a raft of fees (+ one off sale profits) & investors in the Satellite companies get their 'safe' and high yielding asset. The incentive for Macquarie is to keep on sourcing and selling more and more assets into the Satellite companies. The quality and price of new asset sales to the Satellite co's tend to favour Macquarie shareholders over the Satellite co's.

In this case GLNG is Macquarie and GMLP is the satellite co. GLNG sells LNG shipping vessels into GMLP. Both co's could well be shorts, but I favour GMLP for the above reasons (it has a much more limited upside).

GMLP is currently trading at $36, the bearish report gave it a valuation of $8 the bullish report gave it a valuation of $41. The key valuation drivers is the discount rate & capital capacity. Both reports were erring on the extreme side of things when calculating their price targets.

Given the run-up in share price and the convincing nature of the bearish report, I have taken a short position ($36.69). I am running a tight stop ($37.2 - high since the negative report was released). This trade will not set the world on fire, I'm hoping for the current range to crack on the downside and cover $34-35's, best case scenario they dilute (unlikely given I will have this position on for two to three weeks).