Flex LNG Q4 2025 Earnings: Stable Cash Flows Mask Persistent Leverage and Re-chartering Risks

What happened

Flex LNG reported Q4 2025 earnings with revenue and net income consistent with recent quarters, reflecting the stability of its long-term charter contracts. Management emphasized high charter coverage, maintaining over 89% of days fixed for 2025, but flagged critical re-chartering decisions for vessels like Flex Artemis in 2026, which will test market resilience. The balance sheet remains strained, with net debt to EBITDA around 4.6x and interest coverage just under 2x, underscoring ongoing refinancing vulnerabilities despite strong free cash flow generation. Dividend payouts were reaffirmed, prioritizing shareholder returns over aggressive deleveraging, a strategy that may heighten risk if market conditions deteriorate. Looking forward, management cited structural growth in LNG exports from the U.S. and Qatar as positives, but acknowledged oversupply concerns from a swollen global fleet orderbook that could pressure future rates.

Implication

The Q4 earnings confirm Flex LNG's ability to generate stable cash flows from its modern, fuel-efficient fleet under long-term charters, supporting continued dividend distributions. However, the company's elevated leverage and thin interest coverage leave it exposed to refinancing risks and potential EBITDA erosion if LNG charter rates decline. Upcoming re-chartering events in 2026, particularly for vessels like Flex Artemis, introduce significant rate reset risk that could impact future earnings and coverage ratios. Management's capital allocation prioritizes dividends over deleveraging, which may not adequately fortify the balance sheet against a downturn, amplifying downside potential. While structural LNG trade growth provides a long-term tailwind, investors must carefully monitor market supply dynamics and balance-sheet health, as any deterioration could quickly erode the stock's modest margin of safety.

Thesis delta

The Q4 earnings do not fundamentally shift the investment thesis; Flex LNG remains a leveraged play on LNG shipping with attractive near-term cash flows but substantial cycle risk. However, the lack of meaningful progress in reducing leverage or securing favorable re-charters for imminent expiries suggests heightened vulnerability, potentially tilting the risk-reward balance slightly more negative. This warrants a closer watch on upcoming charter negotiations and refinancing activities to assess if the thesis remains intact or requires downgrading to a more cautious stance.