I wrote about investment ideas how to protect portfolio in the war time last week. The ideas are up 20-40% in a week.
Today is another ideafrom this bucket. CoolCo (COOL), an LNGC tanker spin off from Golar LNG had an IPO two weeks ago. The company is still in blackout (brokers involved in the IPO are not allowed to publish a research for 30 days from the IPO launch), no research therefore available. CoolCo is off radar screens of most investors. That should change within two weeks as blackout end.
There are two plays with this asset. First is the blakcout play. There were several banks in the IPO Syndicate. When they are out of blackout the stock gets investors attention, as brokers will publish their research.
Second is the Russian sanction play. If Russia limits the gas supplies to Europe, LNG carriers would be an ideal hedge. Europe will try to source the gas from Quatar and other places. CoolCo would be one of the beneficiaries. I think the supply diversification will happen in any case. Europe will want to reduce its Russia dependence. It is silly that we are funding Russia to make a war against us.
Mishandled IPO – the IPO was placed at 88NOK. The market conditions worsened during the subscription period, the company panicked and closed the deal early. That resulted in many investors getting too high allocations. Some got too much and sold the shares when trading opened. That pushed the share down to mid 70s NOK. The share price re-rated back to around 80 NOK, still 10% below IPO price two weeks ago.
In summary the stock is cheap by mishandled IPO. The re-rating should come organically with the end of blackout period when brokers will publish their research. The could be a material uplift if Russia would limit gas supplies. Even if there is no gas interuption from Russia, EU will try to reduce dependence on Russia gas. That all should benefit CoolCo.
Other news
Quantafuel yesterday reported that Thorleif Enger, Member of the Board of Directors in Quantafuel ASA,has bought 30,000 shares in Quantafuel ASA through Thoeng AS at a price of NOK 17.88 per share. After the transaction, Thorleif Enger and affiliates hold 189,300 shares. We are reporting we have increased our position by similar amount. We believe QFUEL is close to commercialization. We are very bullish on this opportunity. The risk reward is very attractive.
Disclosure:
The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.
The Q4 major news was restarting on Skive today. QFUEL showed an online tour of the plant and showed one line already heating up. Second line should be in operation by mid March too the management reconfirmed. CAPEX increased by 10 mln only. Do watch the Q4 replay from Quantafuel web, it should be there shortly after the call end.Very impressive.
The recent share price drop on the plant recent down time was around 10 NOK or 40%. The market took this as a major event. The CEO said before, that such issues happen even for operating plants. “there are gas leaks on monthly basis for similar plants”. It is comforting how quickly the process identified the issue and how quickly the plant was repaired.
Brokers summaries on the Q4
Pareto Securities
QFUEL NO – Quantafuel – Skive production to resume within days & 2022 guidance reiterated
Quantafuel reports Q4 EBITDA of NOK -61m, which is in line with our expectations. Most importantly, the company state that the first reactor chamber is repaired with heating ongoing and plastic feeding expected to commence within days at Skive. Thereafter, production from the second line is expected to commence by mid-March. This is slightly ahead of previous guidance and our expectations.
Quantafuel also reiterates the 2022 production guidance of 12,000 MT of plastic waste to be recycled, which in our view is positive compared to market expectations. The company is therefore back on track towards achieving “proof-of-concept” and a successful production ramp-up that are key to prove up the value of the technology. With NOK 284m of cash at YE’21 and NOK 400m of additional equity secured in Jan’22, Quantafuel is in a good position to finance further growth. At Esbjerg, close on financial partner is likely the next step.
Fearnley Research:
QFUEL announce 4q21 results this morning posting revenues of NOK 2.3m (CS NOK 4m), EBITDA coming in at NOK -61m (CS NOK -26m), and net income NOK -74m (CS NOK -32m). Revenues mainly stem from operations in Kristiansund (NOK 1.5m) and NOK 0.7m in grants through Avfall Norge. The higher costs compared to CS numbers are mainly driven by higher SG&A and COGS due to increased operations. Cash positions amounted to NOK 285m at the end of 4q21, with additional NOK 400m raised through a private placement end of January.
Skive production target of 12,000 MT for full year 2022 is maintained, where the company expect the two lines operating though January to be back in production by mid-March. This is in line with previous announcement made post the mechanical failures in February. As a result of these repairments, estimated Skive CAPEX is increased by NOK 10m to a total of NOK 620m.
Further announcements include continued progress at the Kristiansund facility towards an integrated sorting, mechanical and chemical recycling plant (completed expansion to 20,000 MT capacity sorting line), construction of the Esbjerg sorting facility is expected to begin during 1h22 with first production in 2h23. Target start date of the planned chemical recycling facilities with VTTI is significantly delayed due to complications regarding the permitting process.
ABG
Quantafuel sticks to ’22 production guidance Quantafuel released its Q4 report this morning. It now guides for both lines to be back mid-March (vs previously minimum 1 line).
The first line has been repaired and expected operational within the next few days. It is keeping the FY ’22 production guidance of 12.000t (which is hence unchanged vs before the Q1’22 shutdown). Q4 EBITDA was -61m (ABGSCe -40m), but its YE cash position was NOK 284m (vs ABGSCe NOK 264m), i.e this is prior to the NOK 400m equity issue.
The financial guidance appears unchanged, except that Skive total capex (now completed) ended at NOK 620m (vs. guidance 610m). The company continues to work on the roll-out plan, but states that permitting issues is pushing start-up on the Amsterdam plant with Vitol to ’25-26 (ABGSCe ’24). The Dubai plans could offset this slippage vs our estimates, depending on the scale (guided start-up ’23-24). We expect the market to focus on the positive update on Skive, and hence consider this a positive report albeit hampered by the slippage on the roll-out in Amsterdam.
Disclosure:
The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.
I increased my positions in coal, shipping and oil.
I bought more exposure to oil. I increased my position in AkerBP. The share is down significantly in last few weeks. Scandinavian investors sold their AkerBP shares to maker a room in their portfolio for Var Energy IPO, that started trading last week. This morning AkerBP was trading 275 NOK, which is a price it traded in September 21, at much lower oil prices. It should re-rate from the Var rebalancing sell off,
I bought coal companies JSW and Thungela (TGA), a spin off from Anglo. Both are cheap. If there is a lower supplies by Russian gas, these companies should benefit as coal would return as a fuel for electricity.
I also bought Sibanye SBSW – a South African Palladium producer. The idea behind is simple. Russia produces 41% of world Palladium. I assume EU will implement sanctions against Russia. I hope the sanctions will be finally tough. Russia will implement response sanctions against EU. Russian Palladium export ban could be a possible sanction candidate. IN that case Palladium would skyrocket. So would this stock.
Disclosure:
The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.
AKRBP sold sharply as investors sold it to make room in their portfolios for Var Energy. Var started trading today, the rotation out of AkerBP should be over. Despite higher oil prices, AkerBP is at the lowest level since September 2021, despite oil price being significantly higher. Carnegie broker comment:
Run rate EPS at USD 93/bbl gives a run rate eps around USD 4,4/ NOK 40 for 2022. We will see positive estimate revisions if brent stays above USD 75/bbl. Finalaizing the Vår transaction might be a positive trigger.
We are long AkerBP.
Pareto on Huddly
New year, new beginning
Huddly delivered Q4 figures below expectations, but announced an upbeat 2022 guidance, expecting ~50% growth y/y.
We continue to view the long-term outlooks as attractive and expect to see improvements already by Q1. Coupled with the current pricing of 9x ’22e EBITDA and 18x ’22e EBIT, we keep our Buy/TP NOK 13.5 unchanged.Q4 figures below exp., but 2022 guidance above
Huddly reported 2021 figures below expectations but announced an upbeat 2022 guidance. The main negatives were I) 2021 revenues of NOK 337m, down 8% y/y and below guidance of 350-370m, and II) 2021 EBIT adj. of NOK 36m, down 66% y/y and 13% below our exp. In Q4, the gross margin was also unusually low at 44%, but with price hikes from Q1’22, this is expected to revert back to historical levels of +50%. Although Huddly has consistently missed guidance in 2021 (link), the company seems confident in the future with a 2022 revenue guidance of NOK 450-550m (up 50% y/y on mid), being the main positive in our view. This is supported by a backlog of NOK 107m (duration of 3-6m), up 23% q/q. Please see link for a more detailed overview.
Approaching growth again Huddly continues to be firm that the slowdown in 2021 is due to external and temporary factors, including (i) FX headwinds, (ii) Covid-19 lockdowns hampering sales and most importantly (iii) supply chain disruptions. Similar obstacles that have hampered growth for other video technology companies, however, all states that the underlying demand is high (e.g. Poly – link). Reflecting Huddly’s encouraging comments regarding 2022, backlog, and several new product launches, we believe it will return to reporting double digit growth figures throughout 2022. For Q1 already, we estimate NOK 105m in revenues, up 23% y/y, and this might prove to be conservative given the Q4 backlog of 107m. On an annual basis we forecast revenues of NOK 494m/705m in ’22e/23e, equal to growth rates of 47%/43%, On profitability, we estimate EBIT margins of 15%/21% in 22e/23e.
Buy reiterated While 2021 was very weak for Huddly, we still believe this reflects temporary drawbacks and anticipate a brighter future. Combined with the relative low pricing of 9x/6x ‘22e/23e EBITDA and 18x/9x ‘22e/23e EBIT, we reiterate our Buy recommendation. TP of NOK 13.5 kept unchanged, equal to 18x ’22e EBITDA.
ABG on Frontline
BUY, FRO.OL: SP, NOK 67.08; TP, NOK 139.00 (136.00)
Not a question of ‘if’, but of ‘when’ We derive our target price of NOK 139 from a 10% premium to our one-year forward NAV of NOK 127/share, up from NOK 124. The increase is mainly due to a higher spread between high and low sulphur fuel oil, which improves scrubber profitability. Our current NAV estimate of NOK 67/share implies that Frontline trades at a P/NAV of 1.0x – higher than the peer average of 0.74x. As highlighted in our research since October of last year, we view the tanker segment as second only to the car carrier segment in terms of buy convictions in the shipping sector and we have not lost our conviction that the tanker market will turn forcefully in 2022e; in June, we model spot VLCC rates to rise towards USD 60,000/day.
Aker Horizons
The macro rotation drove investors out of growth/renewable stocks. AKH is down 50% YTD. The stock trades at 20% NAV discount.
Further the NAV is effected by sharp sell off in Aker Offshore Wind due to AOW not getting any deals in Scottish wind auctions. At the presentation yesterday, the AKH mgmt stated, that as it happen before, they expect to be partners for some of the winners to construct floating wind installations.
Further AKH main asset Mainstream is valued at costs, while Mainstream disposed recently Aela portfolio significantly above its NAV valuation – indicating the NAV valuation of Mainstream might be too conservative.
The inflation might be peaking. If that happens the interest rate expectations should come down. That will make the growth/renewable stocks attractive again. What we like in AKH is its broad focus. They are the one of the best in what they do. We do not know which business will be the winners. Some will. We are buyers of AKH at 20% discount to its depressed NAV and 50% down YTD.
Disclosure:
The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.
I bought AkerBP last week. It is down almost 10% in last two weeks. There are specific reasons why the stock is down. And I believe those reasons should revert shortly.
What drove AkerBP share price down:
In my view it is the Var Energy IPO. It drove the AkerBP share price in two ways – rotation from AkerBP to Var Energy and speculations on valuation differential between the two. Details below.
Rotation from AkerBP to Var Energy
Institutional investors often have fixed sector allocations. If they want to subscribe to Var, they have to sell AkerBP. This has been happening and might continue to happen until the Var Energy allocations are out. Notifications and start of trading of Var is 16/2. By that time the pressure on AkerBP should disappear. If there is a time to buy AkerBP, it is before 16/2.
Speculations on AkerBP vs Var Energy valuation differential
When you listen to Var IPO analysts presentations they all compare Var Energi to AkerBP. They argue, that the Var Energy IPO is placed at a discount to AkerBP. As a result speculators shorted AkerBP shares and subscribed to Var Energi – they are long the valuation differential, but have neutral oil exposure. I understand from my brokers the increase in short interest in AkerBP has been substantial.
After Wednesday when Var starts trading speculators may start closing both positions – they close the AkerBP short by buying the AkerBP shares and sell Var Energi. The bigger the upside of Var Energi on its first day of trading will be, the faster the rotation might be. If Var Energi would open 20% on the first day, they could quickly sell Var and buy back AkerBP to close the shorts. The re-rating could be fast. Var down AkerBP up.
In my experience the simple trades often do not work as people think. I understand the Var Energi deal is oversubscribed, which may result in investors getting lower allocations then they expected. In such situation they would need to re-balance the trade quickly – buy back AkerBP shares to balance the short against their allocations. That could help AkerBP.
The Var Energi term sheet talks about possibility of up-sizing the deal. There is a good chance that this could happen. In such situation, Var Energi may not go up so strongly as people think. Some people would close the positions, some may hold it and wait for rerating later, which would make the AkerBP shorts closing more gradual.
I have no crystal ball. Anybody can make their own assumptions how this will play out. For the moment I am long AkerBP and not subscribing to Var.
Disclosure:
The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.
Quantafuel had investor call today to update investors on Skive Plant. The playback is now available on their website. It is 20 min long, worth to watch.
The call was hosted by the CEO Lars Rosenløv and COO Terje U. Eiken.
The link to the call is below:
Call highlights (emphasis added):
We now had a time to inspect the areas of concerns which let to temporary shutdown of Skive plant on Saturday evening
The inspections confirmed what we said on Monday – this repair can be resolved without significant costs
This has nothing to do with Quantafuel pyrolysis process or technology. We are progressing as evidenced we have processed 200 tons of plastic in January, the same as the whole last year.
Our experts together with our partner and two external experts firms observed the situation and proposed a permanent repair solution
The subcontractor local company has been already assigned to repair the chamber. We will do the same improvement on all the lines.
We expect to be back in production by mid March on at least one line
I would like to underline that these improvements will not have effect on our previously communicated goal to have all lines in operation in Q2
We do not view this as very significant and we concentrate to get back into production as quickly as possible.
We do not believe the repair costs will be significant
At the moment we believe this will be insignificant for our fully year guidance. We will provide an update on our guidance, if needed, on our quarterly call
This incident does NOT affect the pipeline of the other QFUEL projects at all – Sunderland, Esbjerg, Dubai and Amsterdam proceeds as before
At the time of writing QFUEL is around 17NOK, up by 11% for the day. That is still 22% down from 25 NOK QFUEL was trading before the incident was announced.
We are in commissioning period. These things will be happening for some time. The call on Monday had made this a bigger issue than it seems to be. Congratulations to those who took advantage and bought shares.
Disclosure:
The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.
Biovica idea has been delayed by FDA Covid related congestion. Biovica announced last night, that FDA process has restarted. Biovica is covered by Pareto and Redeye. Both are very bullish.
Last year we have doubled our money on Xbrane. I believe this is a doubling candidate too. Both brokers are equally bullish. I include below parts of their notes published today:
Pareto Securities:
FDA feedback: Re-submission in May, expected approval in June
Biovica received the full feedback from the FDA tonight – after months of discussions with the authority. Biovica will re-submit the application by May upon which the FDA will approve or reject within 30 days i.e. within June (given the FDA sticking to its timelines and not e.g. be overwhelmed by a resurgence of COVID-19). This announcement finally gives clarity on timelines and while the delay is extended into June, considering the extensive FDA discussions laying behind, we believe that DiviTum has a high chance of approval.
We have a Buy rating on BIOVIC with a TP of SEK 103.
Finally, a clear timeline The company has to re-submit the 510(k)-application with some additional data from a “lab study” which Biovica will generate over the coming weeks. The study is to provide proof that Biovica can produce several lots of DiviTum materials withing set specifications – which the company has done in the past, yet the FDA asked for additional validation.
Cash position sufficient until expected DiviTum approval in June Biovica had cash and cash equivalents of SEK 118m at the end of October 2021. With a quarterly burn rate of approximately SEK 14-16m, the cash position should suffice until approval. Upon approval, the burn rate is expected to increase substantially due to sales and marketing costs, for which the company is likely to require additional capital.
What is DiviTum? As a reminder, DiviTum is a novel blood-based diagnostic tool that allows to see within 15 days if a CDK4/6 inhibitor used in metastatic breast cancer such as Pfizer’s Ibrance is having an effect on the tumor or not. Current imaging methods such as MRIs require three to six months. The company managed to gather extensive amounts of clinical trial data and support from high-profile key opinion leaders (KOLs) within (mainly) the area of metastatic breast cancer.
Redeye Research
Redeye Research basic package is free of charge, recommend subscribing:
Biovica: The message from FDA is – Ready for boarding
FDA is now ready to process an updated application for Biovica. Earlier, the interactive process between FDA and Biovica was paused, and this is now history. There is one remaining outstanding question, and Biovica expects to be prepared to file in May. We can expect 60 days to an FDA approval or a complementary clarifying question in the worst case.
Biovica’s US commercial process moves from paused to active. FDA has activated the interactive process by sending a formal clarification regarding the one outstanding question and what is required from Biovica to file an updated application ahead of a final decision.
We understand that the remaining question is related to methods, and to address this question, Biovica probably needs to complement a precision study. The last question does not require a new clinical study, and Biovica expects the updated application to be filed in May, after which FDA is expected to decide within 60 days.
This progress is, of course, very positive news. The FDA is moving into a more normal business in the diagnostic space outside COVID related emergency applications (Dx has been pinpointed by the FDA earlier as an area that COVID related priorities have especially hit). The positive is balanced by a slightly longer than expected time from this FDA decision to the actual filing from our perspective. This period is now approximately three months, and we expected more like one to two months. This delay is, in our view, small beer in the overall picture.
Our outlook and value proposition
FDA is ready for boarding, and we can expect take-off by July in our view. This renewed active stage is positive, and it is also reassuring that the final stage will not require new clinical studies. The opposite would have been negative and surprising as Biovica is supported by an extensive and growing body of clinical support. We remain confident that the delayed FDA process will result in delayed approval. Our value proposition is a base case value of SEK 95 (Bull SEK 325, Bear SEK 20).
Hofseth Biocare – Most Innovative Human Medical Nutrition Ingredients Award
I have been long bullish on Hofseth Biocare. It is a transformation play, and transformation plays take a bit longer. It is not a short term play. The investment thesis is summarized below:
Hofseth Biocare announced today they got Most Innovative Human Medical Nutrition Ingredients Award. It is an in independent verification.
Hofseth BioCare (HBC) has been named Most Innovative Human Medical Nutrition Ingredients Producer in the ghp Technology Awards announced today.
The award recognises the 15 years’ R&D and wide-ranging applications of the company’s three ingredients: ProGo® bioactive peptides, CalGo® calcium collagen complex, and OmeGo® full spectrum omegas. With 34 clinical studies and patents completed or underway, and 48 health and structure / function claims from US FDA, Health Canada and EFSA, the scientific evidence continues to grow.
What makes HBC different is its ability to convert fresh sashimi-grade salmon byproducts alone into nutritional ingredients to support human health, using a truly circular business model with zero waste. As part of the Hofseth Group, it is the only fully integrated, sustainable (carbon-neutral by 2025) salmon business devoted to human nutrition and wellbeing.
A safe, patented enzymatic hydrolysis process is used to gently extract the ingredients from fresh salmon offcuts. Importantly, this means the ingredients are subject to minimal processing with no additives, antibiotics or GMO.
Dr. Tanja Schaffer, Executive Vice President, Global Ingredients at HBC commented: “We are delighted to be recognised as the Most Innovative Human Medical Nutrition Producer 2021 by ghp. Our products are the most sustainable and traceable marine ingredients available globally. We believe their potential is amplified through our innovative research platform, which can identify new health benefits from marine ingredients with proven commerical significance”.
Short term trading ideas:
I have been buying AkerBP in anticipation of good Q4 results due on 10/2. BP PLC announced today strong results that pushed the stock by 7%. AkerBP could be similar.
I have been buying Huddly that is reporting on 15/2. Very good company, that is 50% down on Covid supply chain disruptions. I am very bullish on Huddly, I believe the stock will come back. It could be this quarter, it could be next. The expectations are beaten down, any positive surprise could result in a material share price growth.
Disclosure:
The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.
Over 150 analysts and investors participated in the call. The CEO made a short introduction remarks in which he repeated what was said in the press release. There was a burner failure, they are investigating it and will know more this week. After that he went to Q and A. That did not bring any material additional information that was not press released.
I struggle to understand the new management PR strategy. First they were setting up for themselves very ambitions targets which they were not able to meet. That disappointed the market. That was unnecessary. Now they seem to be starting a policy of total openness. They already announced another call for later on this week.
QFUEL is in commissioning phase. These issues are normal. It happens. It is just a delay. The only question if it is one week or one month. None of that is big deal. If they are going to announce and discuss with shareholders any technological failure, that will just lead to share price volatility. I think it is a wrong strategy. The market does not need to know every detail. If you start providing all those details the investor confidence will not increase. It will only increase volatility of the share price.
The management did try to emphasize, that the company is making progress, their view on the technology remains unchanged and reconfirmed this year guidance again. Lars said they have sent 6 shipments to BASF in January – as many as in the the whole last year. Evidence of the progress Quantafuel is making.
Norske Skog Price Targets updates
I wrote here about five times on NSKOG this year. The share price gain is 35% YTD. It still trades at 2.8x EV/EBITDA’22E (peers at ~7-8x). Brokers published their increased price targets today.
Pareto increased their price target to 90NOK from 70NOK. The 90NOK price target is equal fot ~5x EV/EBITDA’22E.
ABG increased their price target to 70NOK from 50NOK. The wrote “our SOTP could end up closer to NOK 100/sh.”
DNB increased their price target to 80 NOK from 55NOK. The research is called “Impressive pricing power” They wrote: “As we are increasingly confident in our 2022–2023e scenario and believe management will execute on the packaging transition that could lead to EBITDA of more than NOK2bn by 2026e, we like the risk/reward. Our target price corresponds to an EV/EBITDA for 2022e of 5.6x and for 2023e of 6.3x.”
I will write more details on the research in the next days. Other brokers are due to report their increased price targets. Please see my Friday posts for details on the investment story.
The company is starting to be more communicative with shareholders. They just announced a call for the 1st March for ABG clients. Hope they will announce commissioning progress of the Waste to Energy plant.
Disclosure:
The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.
Norske Skog (NSKOG) earned 10% of its market cap in Q4. That is 40% annualised. Paper prices are up 35% in January vs December. More capacity closures by competitors announced for 2022 and 2023 which should maintain prices high for the period. NSKOG waste to energy plant is in comissioning now, and should be in full operation in Q2, which is very bullish. Cardboard conversion on track for Q4 start. All good news from NSKOG this morning. Expect wave of broker price targets updates next week.
I wrote here four times about NSKOG in January. The share price was up 23% in January even in the bad markets. The appreciation should continue. The stock could double this year if the company continues delivering this way.
Brokers published their results summaries:
Pareto Securities
Q4’21 first take – Massive EBITDA beat, earnings uplift for 2022E
NSKOG delivered Q4 EBITDA adj. of NOK 422m, up 189% y/y, and 59% above cons. of NOK 266m (PAS NOK 300m).Improved prices are the main positives, compensating for rising energy and raw material costs. Solid cash flow, and cash at balance of NOK 1.5bn. Outlook includes prices uplift across all products into Q1 and 2022, as the market for publication paper is cited extremely tight. The latter reflected by 96% utilization ratio for NSKOG’s European publication production. The waste-to-energy plant is in commissioning and on-track for takeover from Valmet in two months, due to contribute with >NOK 200m p.a. EBITDA. Containerboard projects on time and budget due for production in Q4’22.
Outlook reflectsimproving industry operating rates and a tight publication paper market, due to secure further price uplift in 2022. As proven by Q4 results, NSKOG is on path toward more normalized earnings for legacy business, while new projects should drive EBITDA higher.
We will lift estimates following the report and the share price should rise today. We reiterate Buy, andTP of NOK 70.
Carnegie
Norske Skog (Buy): A very strong report
Norske Skog reported an EBITDA of NOK422m, 83% above our expectations and 59% above consensus. Both Europe and Australasia way above expectations. In Europe, EBITDA landed on NOK395m (Carnegie estimate NOK 236m). The deviation is foremost due to higher achieved prices (around 5% we estimate) but also slightly lower costs. In Australasis EBITDA totalled NOK46m (Carnegie NOK 1m). The deviation solely due to higher prices, which we admit, has gone totally under the radar. With EBITDA NOK422m the run-rate is just 13% below our 2022 estimate of NOK 1.9bn, so with the increased paper prices in 2022, there should be no secret that we will have to increase our estimates. Shooting from the hip suggest that we will increase EBITDA by around 10% to around 2.2bn. Consensus is around NOK 1.45mNIDB stood at NOK1052m (CAR est NOK 1142m). With the proceed from the 2022 CO2 compensation (we est NOK 250m) received 1H2023 and the sale of the biopellets plant of NOK280m, adjusted NIBD is around NOK520m and cash around NOK2bn. In other words no need to worry about the equity funding in the EUR 350m capex for the conversions.
Expect the share up today – if we should guess 5-6%
Q4 EBITDA 59% above cons – higher pricesPublication paper prices up 35% m-o-m in JanuaryQ1 EBITDA likely up more. MTM EBITDA NOK 1.5-2bn
Q4 EBITDA was 59% above cons Q4 clean EBITDA of NOK 422m was 59% above cons at NOK 266m (ABG NOK 270m). Higher paper prices in Europe contributed positively q-o-q and EBITDA was up 280%. The EBITDA margin rose to 13.6% vs 6-8% the last 2 years. Reported EBIT of NOK 479m vs. cons at NOK 158m due to NOK 185m positive one-offs (not in EBITDA). This puts EPS at NOK 4.24 vs cons NOK 1.3 (ABG NOK 1.3). Better prices added NOK 550m, gas deducted NOK 150m, electricity deducted NOK 75m and RCP deducted NOK 25m q-o-q.
Higher prices + strong volumes Publication Paper Europe had EBITDA of NOK 395m vs our estimate of NOK 270m. Publication Paper Australasia had clean EBITDA of NOK 46m vs our estimate of NOK 10m and “other” was below at NOK -19 vs our NOK -10m. Volumes were strong and the utilization rate was to 95%: Production was flat q-o-q, deliveries fell 2.4%. Cash flow was strong: Net debt was flat q-o-q at NOK 1,054m despite NOK 326m capex.
Outlook: Newsprint prices up 35% in January to ATH Publication paper prices are up dramatically. Newsprint prices are up 34% m-o-m in January and up 80% from the trough in June’21. This will benefit Norske in ’22, although the company has realized large price increases already in Q4 (ahead of its peers). Q1 should improve further due to more price increases, higher CO2 benefits, somewhat offset by higher Norwegian electricity contracts linked to German newsprint prices. We reckon that Q1 EBITDA could improve to NOK ~450m. Norske buys 1.1 TWh of gas at the Bruck site; this gas bill will be sharply reduced from Q2‘22e when the Bruck energy boiler starts up in Q2, ie Q2 should be better than Q1. We see MTM EBITDA NOK 1.5-2bn.
DNB
Initial Comment – Significant Q4 beat due to pricing
Due to surprisingly high graphic paper prices in Europe (27% up QOQ), Norske Skog delivered a Q4 EBITDA of NOK422m significantly better than expected. On a positive note, the waste-to-energy facility in Austria is expected to be in operations in Q2 and the containerboard projects appear to be on track. We find the Q4 report very encouraging and supportive for the share price.Q4 report.
The EBITDA was NOK422m compared with Bloomberg consensus (5 est.) of NOK240m (76% EBITDA beat) and DNB of NOK160m. The Q4 results appear straightforward and the much stronger Q4 results are fully due to significantly higher European graphic paper than what anticipated. Materials cost/t for the European paper business was up more than 20% QOQ in Q4 but this was much more than offset by European paper prices moving up 27%QOQ inQ4 (we had assumed 7%). Sales of Co2 rights in Europe contributed to NOK105m (se had assumed NOK160m).
Strong market conditions expected to prevail: As usual, Norske Skog is not providing any tangible earnings outlook. However, the company says that the significant capacity closures and conversion to packaging paper in the industry have positively impacted the market balance for publication paper. Additional capacity closures have been announced for 2022 and 2023. Thus, operating rates are expected to remain high for the industry well into 2022.
Transformational projects on track: On a positive note, the wast-to-energy facility in Austria is expected to be in operations in Q2 and the containerboard projects appear to be on track. Although we had expected this, this update is still comforting.
Positive revision and higher share price: Obviously, consensus expectations for 2022-2023 will move up significantly on the back of the major earnings beat that is driven by stronger pricing and Norske Skogs comments about high operating rates in 2022e. Difficult to say how much but consensus EBITDA22e could increase in the region of 20-30%. Ahead of Q4, consensus EBITDA was at NOK1,275m and DNB at NOK1260m.
Disclosure:
The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.
I wrote 4x about Norske Skog in January. The idea seems sound, up 23% in January. I believe we are still early innings. Norkse Skog (NSKOG) is reporting its Q4 numbers this Friday.
NSKOG should appreciate both before the event as well as after the event. Most banks already increased their price targets by now. There will be another wave or research updates after the report.
Pareto included NSKOG for their 10 Top Picks for February. Pareto has a pricetarget of 70 NOK vs today share price of about 47NOK. Even at 70NOK NSKOG would cheap – 70NOK corresponds to ~6x EV/EBITDA’22E vs. peers at 8-9x.
You can read about other brokers recent updates on NSKOG in prior posts here.
Pareto reasoning for NSKOG in February Portfolio
NSKOG (Norske Skog) rose 22.9% in January after publication prices reached historic heights in Europe amid extremely tight markets. Supported by Q4 guidance from peers, which included improving margins for 2022
NSKOG – BUY, TP NOK 70 We keep NSKOG in our monthly portfolio as we expect improving fundamentals to secure a solid earnings uplift in Q4. Publication paper prices have reached historic hights amid extremely tight markets, expected to more than offset soaring input costs. This makes us increasingly confident that earnings growth will carry-on into 2022, seeing potential for at least 6x consecutive quarters with EBITDA growth ahead. The key remains the transformation process, which we think is on-track and budget for start-up in 2022. With improved revenue mix, margins should rise, and a further repricing is warranted. We have a Buy and TP of NOK 70, corresponding to ~6x EV/EBITDA’22E vs. peers at 8-9x.
Why we like NSKOG:
Strong paper prices should cause the EBITDA to triple in 22 vs 21. Sparebank estimates EBITDA would increase from 500 mill NOK to 1600 mil NOK. EBITDA margin should increase from 4% to 13% over the two years.
NSKOG is cheap vs peers. Under Sparebank estimates NSKOG trades at 4.2x 2022EBITDA vs 9.5x 2022EBITDA for the peers.
Pareto estimates that the renewable portfolio has the same value as NSKOG current market cap. I do not believe the mkt gives NSKOG any credit. Its waste to energy plants comes into operation in five months. That should cause recognition of this value by investors.
The mkt gives NSKOG no credit for significant CO2 permits revenue – Carnegie estimated the CO2 permits revenue between 45-60million EURO. That was done when permits were around 60 EURO. The permits are around 90 Euro, If you recalculate this to current CO2 prices, the next year CO2 revenues would be 60-80 Million EURO. That is very material for 350 million EURO market cap. For comparison SpareBank estimates that next year paper EBITDA would be 100 million EURO. CO2 Permits could increase the EBITDA by 60-80%.
Disclosure:
The goal of the blog is to provide investment ideas for further research. I/we have a beneficial position in the shares discussed above either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. The article does not represent investment advice. Please do your own research before making any investment action.
Fit Investment Ideas 