Riding helicopters in Qatar: Tailwinds are huge
Burton Flynn and Ivan Nechunaev
March 2024
In recent years, Qatar has established itself as the world's top gas producer, the Middle East's conflict mediator, and a venue for world-class events such as the 2022 FIFA World Cup. In a twist of fate, we made an unplanned research trip to Doha to see Qatar’s economic accomplishments, assess major growth drivers that will facilitate the country's further progress, and search for promising bottom-up investment opportunities listed on Qatar Stock Exchange.
Diversion from Dubai to Doha on the fly
We had started enjoying the great quality of Qatar's infrastructure and transportation ecosystem before we even made it to the country: our appreciation of Qatar's far-reaching air travel network began in a seemingly random place – Sri Lanka. We were in Colombo on a prior research trip when Qatar announced a multi-billion-dollar decision to expand its liquefied natural gas (LNG) production capacity by a jaw-dropping 85% by 2030. Such economic catalysts easily trigger major multi-year stock market bull runs, and so we quickly rebooked our flights: instead of Dubai we were now flying to Doha! – determined to search for cheap, growing, high-quality companies in Qatar that would benefit from the massive LNG production increase and the resulting economic growth in the country in the next few years.
We boarded one of the five (!) daily direct flights from Colombo to Doha operated by Qatar's flag carrier airline – which was named the best airline in the world three times in the past five years by the most reputable aviation industry rating agency. After a pleasant flight on a new airplane with attentive economy-class service, we landed in Doha airport – which was named the best airport in the world twice in the last three years. Effortlessly and quickly – a friendly tongue-in-cheek nod to Kuwait – we passed through immigration and placed our boots firmly on Qatar's solid ground, ready to do our due diligence.
Inside Doha Hamad International – the world’s best airport
Playing monopoly with LNG up our sleeves
Qatar's LNG production capacity increase by 85% will reinforce the country's place as the world's dominant gas supplier, increasing its global LNG market share to 25% by 2030. For Qatar, already the world's lowest-cost LNG producer – with production cost per unit at least 10x lower than that of its competitors such as the US or Australia – this expansion comes very timely given the broad global push to decrease reliance on oil and coal and resort to the more sustainable natural gas instead, and can yield significant economic and geopolitical benefits. Just a couple of weeks after the government’s LNG capacity increase announcement, Qatar’s credit rating was upgraded – now it is higher than that of France and the UK, on the back of looming budget surpluses for the next few years thanks to the ever-better LNG production.
On a short notice, we met with a diversified $1.4b holding trading at 12x LTM P/E which is one of the most likely beneficiaries of the imminent growth boom in Qatar. The company's main earnings generator is its helicopter transportation services subsidiary – the sole (read monopoly) provider of helicopter rides in Qatar – whose chief focus is on serving gas projects in the country. The major LNG production boost is very likely to drive earnings growth of this helicopter business until at least 2030, while the overall economic expansion in Qatar will further aid growth of the holding's other subsidiaries such as insurance and catering businesses.
The fund decided to invest in this company, which has already been growing earnings at a high rate in the last few years – unlike most other listed firms in Qatar that saw their earnings slump after the 2022 football world cup – and now appears to benefit even further from the sharp increase in the volume of gas projects it will serve. It only helps that the company is ultimately controlled by the same government body in Qatar that is driving the whole LNG expansion agenda, and its stock's trading on Qatar Stock Exchange is already sufficiently liquid (or should we say – liquefied?).
Meeting with a $1.4b holding that will benefit from Qatar’s massive LNG production expansion
Propelling along with Qatar
Gas-rich Qatar has made great strides in putting itself on the global map of influence through its efforts to create the Middle East’s premier media business (Al Jazeera), mediate and provide a platform to help resolve geopolitical conflicts, and strategically invest in prime assets such as the Heathrow airport in London or Volkswagen in Germany from its half-a-trillion-dollar sovereign wealth fund. The country is also becoming much more open to visitors and has started hosting world-class sports events at impressive modern facilities, the flagship of which to date was the 2022 FIFA World Cup – a perfectly organized celebration of football which we attended to cheer for the beauty of the game as emerging markets Mexico and Poland battled it out on the pitch; we also participated in the 2024 masters swimming world championships, nearly cracking a top-10 ranking and admiring how well the event was run.
Largely thanks to football, Qatar's local infrastructure has been strongly enhanced in recent years. For example, Doha’s residents can now use a brand new – very clean and stylish – metro train system, and we surely appreciated smooth traffic-light rides on well-planned highways to our meetings in Doha during this research trip. Of course, our rides were not same traffic-light in late 2022 during the world cup when the roads were congested and Doha felt much more vibrant and dynamic compared to its current quiet state: the country invested a lot in the world cup and has been facing a minor post-festival depression since it ended. Now, a new, sustainable long-term catalyst – the 85% LNG capacity expansion – promises to fix this temporary slowdown and put Qatar back on the growth track, enriching its citizens (and investors?) and unlocking further geopolitical benefits for its rulers. We might well be taking a helicopter ride along.
