Fearnley and Arctic bullish on Havila Kystruten

Havila Kystruten – Potential multibagger on tourism in Norway. Fearnley and Arctic both published a bullish reports this week with price target of 1.8/1.73 NOK. Both talk about material upside above the current price target with short term triggers to achieve those:

• HKY offers exposure to the high growth tourism segment in Norway, with strong underlying asset values and sensitive equity triggers.
• The company is one of two operators on the scenic coastal route in West Norway, with four of the most environmentally friendly cruise ships in the world.
• The routes are regulated by government concessions with contracts running to 2030 and NOK 103m in annual payment per vessel from the Norwegian government.
• Tourism in Norway is experiencing high growth – The number of port calls Jan-Aug this year is on par with FY22 and above pre-COVID levels.
• HKY is likely to refinance parts of its high interest cost over the coming 12 months, which we expect will increase free cash flow by NOK 59m annually and serve as a significant trigger to the equity story.
• The fleet of cruise ships offer strong downside protection in replacement cost of NOK 3.0/share and broker quotes on the fleet of NOK 2.5/share.

Arctic Securities Summary:

IoC: Every storm runs out of rain After several challenging years due to factors out of management’s control, the refinancing this summer enabled the company to take delivery of the final 2x vessels in August while also ensuring a sufficient liquidity buffer. HKY now has four state-of-the-art vessels on a contract with the Norwegian government running through 2030. On our figures, the company should be able to ramp up utilization without any further equity injections. Once the leverage ratios start dropping to more comfortable levels, a refinancing will be the clear catalyst for a re-rating of the stock. We initiate coverage with a Buy recommendation and a TP of NOK 1.73