Fearnley: Maritime Sectors are Screaming for a Greener Future

Fearnley published research on HAV Group this morning.

I am long HAV since its IPO. I think this is very good summary of the investment case. Considering buying more after reading this.

Fearnley front page summary:

Maritime Sectors are Screaming for a Greener Future

HAV stands out as one of few companies within the energy transition sphere with solid cash flow generation (FSest adj. FCF yield for 2021/’22/’23 at 13/9/11%, respectively). ‘21 is looking to be an extraordinary year, mainly due to delivery of the Kystruten contracts and we expect normalized design revenues for ‘22/’23 (FSest NOK 100-150m annually excl. trading). That said, we estimate high growth for both NES and NGT and see triggers from i) contract awards, ii) potential international expansion for NES, iii) ballast water convention for 2024 getting closer, and iv) additional upside from hydrogen, leaving strong support in the share. Longer-term, we continue to see HAV as one of the best ways to play the greener future within the maritime industry. 

We maintain our NOK 25/sh TP and Buy recommendation (NOK 25/sh 25.03.2021). 

2021 has been extraordinary and 2022/’23 will come down2021 is looking to become an extraordinary year (HAV delivered annualized FCF yield of c. 28% last quarter). The company has guided revenue for 2021 of NOK 850-950m with EBIT margins in-line with 2020 levels (c. 7%). We expect overall revenues to come down in 2022/’23 due to more normalized design revenues between NOK 100-150m excl. trading. However, NES and NGT is expected to grow significantly. We lower our Design revenues by 40-35% for ’22-’23 and increase NES sales by 40-33% whilst NGT sales are more than doubled. This leaves FSest total revenues of c. NOK 744/795m in ‘22/’23, which is up 0/3% from our previous estimate. 

The long-term story remains intact
Longer-term, we believe HAV is a solid investment case on the ever-tightening regulations within the maritime industry. As a case in point, shipping accounts for c. 2.5-3-0% of global emissions and seaborne trade is set to nearly triple by 2050. Further, organizations have implemented ambitious targets and restrictions with more expected to come. One example is the ballast water convention requirement for sailing vessels by 2024. Another is zero carbon tenders for the offshore wind installation space, with both adding demand prospects for HAV. 

Valuation – Buy, TP NOK 25/sh
We derive a cash flow-based value of NOK 25/sh using a DCF approach (11% WACC), with EBIT margins of c. 8.0-12.5% for HAV Design (NOK 10/sh), 5.0-10.0% for NES (NOK 9/sh), 5.0-10.0% for NGT (NOK 4/sh) and 5% margins for Hydrogen (NOK 1/sh). Adjusting for NIBD and NWC leaves us with a NOK 25/sh target price.

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