Author Archives: Fit Investment Ideas

There are three companies that I like in Scandinavia that are restructuring their business. They have one common feature. They already told us, that they got new sales partnerships. The partnerships have not transferred into sales, yet, but there is a very high probability that they will. In all three cases, when this happens the share price should multiply.

NEXT Biometrics – I enclose the thesis below. It is well summarized and easy to understand. In summary that company has signed 16 sales agreements that are yet to transfer into sales orders. Pareto estimate that when this happen the quarterly revenues should increase by 400%. They expect this by the Q4 this year. If that happens the share price should increase three to four times as well. I find it very attractive. Since the article the company announced a new partnership with European major with 20 bil EURO sales. Just this company could multiply the revenues of NEXT. I am long NEXT and I am very bullish.

https://seekingalpha.com/article/4406713-next-biometrics-sales-wins-should-drive-revenues-400-percent-higher-this-year

Hofseth Biocare – very similar situation to NEXT. The company was processing Salmon waste for pet feed. They have remodeled their technology and now they stop supplying pets and focused on humans. They sell Salmon Oil and Salmon protein. Salmon protein is to be used for protein human foods. Last week they announced the game changing partnership – they signed contract with protein food producer Garden of Life (owned by Nestle). They already shipped the first protein cargo to Garden of Life that is planning to lunch the product in the US in Q3. Again just this contract has a potential to multiply HBC’s revenues and its share price. On the top of it, I found that the company is now selling its Salmon oil on Amazon, in 400 Lidl stores in Germany and in 1000 stores of Cosco USA. The company indicated in the past that they plan to do it, but for some reason they did not announce it. Fortunately we have Google that can give us the information. Look at the below link at an article that again summarizes the story. After the above is achieved the company is planing to lunch medical supplements. They got the first FDA approval this year. When this achieved the margins will jump further.

https://seekingalpha.com/article/4390174-top-value-creation-play-in-biocare

Norske Skog – it is the second largest paper company in the world. What the market does not appreciate are two things: it has a green product portfolio that has a value euqal to its current market cap. So either the market gives its paper business zero value or the market does not recognize the green portfolio. I believe that it is the later. On the top of it the company is now converting part of its paper production into Green Packaging production, that can be used for example for paper plates to replace plastic in fast food chains. The product has triple margins vs the paper production. The market does not appreciate this either. I speak to the company and they do plan to inform the investors on the value creation opportunity. See the below link for description of the value creation.

https://seekingalpha.com/article/4407578-gain-exposure-to-hot-scandinavian-ipo-circa-through-largest-shareholder-norske-skog

First, I would like to congratulate all those, who traded the Scandinavian Opportunities published about a week ago. Very good returns. The call on Circa is has been excellent for the last two weeks. You could almost double your money.

Two ideas are from a Fearnley daily report. I copy below their report in full. I am long both and I am glad Fearnley support this two ideas. I believe both are candidates for doubling during the next quarter:

ALUS/FREYR – Asymmetrical risk with zero downside until merger
Looks similar to HCCH/Fusion Fuel (now HTOO) ahead of its merger when the stock was essentially flat until two weeks ahead of the EGM, then rallied ~50% over the two weeks going into the EGM and another 35% on the day when the merger was approved.

We might be in a different market, but redemption value in ALUS is $10.07/share which is where the stock closed yesterday. ALUS filed with the SEC two weeks ago and said the EGM will be held promptly once the statement is declared effective, likely in late April / early May. ALUS is merging with FREYR, a Norwegian developer of clean, next-generation battery cell production capacity.

FREYR har hired executives from the oil/gas and aluminum industries (Equinor, Hydro, BP), who are experienced in running large projects. The company has received NOK 181m in support from the Norwegian government so far. While ALUS has $290m in cash on balance, the combined company has a fully-committed PIPE equity issue of $600m anchored by Koch Industries; Glencore; Fidelity FMR; and Franklin Templeton, among others. FREYR is located in a region with vast supplies of renewable energy and seabed minerals (cobalt and manganese). Commercial production will start in 1H23 and the company is currently in discussions with 40 potential customers within electrical vehicles, power production and marine electrification. The industry needs to quadruple capacity to at least 2TWh in 2030 in order to meet demand (Bloomberg). Note Sweden’s Northvolt recently won a $14bn order to supply Audi and Porsche. ALUS will likely get increased attention going into the merger, with zero downside to redemption value. Latest investor presentation: https://www.freyrbattery.com/assets/Documents/FREYR-Investor-Presentation_WEB.pdf

HTOO – Spoke with company, Evora on track for Q2
Fusion Fuel is on track with Evora production start this quarter, also with the production facility development. Evora will be a game changer for the company and a ‘proof of concept’ on an industrial scale. The company aims to get the first part of the project onstream, audited and verified as early as possible in 2Q21 which will be announced to the market. The company is sufficiently capitalized to carry out activities into 2022. Over the next 6 months, the following will happen: 1) Production start at Evora, major share price trigger; 2) production facility will be well underway; and 3) large agreements and projects will be announced and committed. Management thinks a dual listing in Oslo may make sense going forward. Interesting share price level to get in now ahead of the largest catalysts to date.

BWLPG/Avance/Dorian – Rates continue upwards Our analyst prefers BWLPG and Dorian, but a rising tide suggests Avance will move too. VLGC rates continue to recover from the March doldrums with levels now breaching $30k/d ($20-25k/d is cash break-even for the various players). In the Western hemisphere, April cargoes have continued to absorb the vessel overhang which coupled with discharge issues in the East has created a substantially tighter market than what was the case a few weeks ago. Vessel exiting the market for DDs have undershot our expectations YTD, but with several vessels set to enter docks near-term we see a continued tight market balance moving forward.

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Top BUY Ideas (adding LPG stocks/MGN, removing AOW/SGRE): LPG stocks, MGN, DVD, MPCES, TE, LSG, ODL, WALWIL, ZIM, NRS, HRGI, OHT, NFE, REC, AKSO, HTOO, OSUN
Top SELL Ideas: TGS, TK US

Norske skog is Worlds second largest paper company, that is changing its production capacity from print paper into green renewable packaging, that should be used in fast food chains etc. The company estimates that the renewable packaging should increase EBITDA by 500%. NSKOG is now very cheap – trading at 50% vs its peers. On the top of it it has a portfolio of new renewable business, that have a higher value than its market capitalization. So either its paper business is valued at zero by the market or the market does not yet appreciate the value of its renewable businesses.

The reason for this valuation gap is that everybody in Scandinavia was chasing renewables IPO and neglected NSKOG. This will change with the new communication strategy by the company.

I spoke to the company last week. They do recognize this valuation gap and will focus their communications to demonstrate the value of the renewable businesses and the value creation by its restructuring. It was already reflected in the annual report published last week. I am sure it will be reflected in their Q1 presentation, that will take place on 23 April.

We are long NSKOG. I believe it is an interesting short term play (Q1 presentation should be reflected in wave of research updates by brokers) as well as long term play (capitalizing on the restructuring that the company announced). Pareto says below: We expect more updates on certain projects throughout the year, and combined with recovering paper prices, triggers are lined up for a vast revaluation. We are quite bullish NSKOG.

Below is a summary of Pareto Research on Norske Skog published today:

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Tradin pattern changes. January and February was interesting to buy into IPOs. In late February this changed. There were so many transactions, that the Scandi market was not able to absorb it. Even great companies were failing. The trade changed. What is now the trade? Buy the failed IPO and wait till the publication of research. That is the catalyst that should drive the companies up.

Great example was Circa. We were very bullish on Circa based on the below article. But Circa failed – there were too many deals at that time. IPO was launched at 16.75, the share price stayed around 15. Yesterday, Sparebank issued bullish report on Circa, with price target of 30 NOK. Circa jumped 50% in two days. As I predicted in my previous blogs and as was predicted in the article. I believe that Circa will continue going up. The secondary thesis still remains. Norske Skog owns 32% of Circa. Circa is now valued at 7.5 NOK of NSKOG shares. This has not been reflected in the share and should lead to rerating of NSKOG. Do read the article, it is well summarized there.

https://seekingalpha.com/article/4407578-gain-exposure-to-hot-scandinavian-ipo-circa-through-largest-shareholder-norske-skog

Similar opportunities:

Huddly – Provider of premium tools for video conferencing. Another failed IPO – trading below IPO price. AGB issued research today. They believe it is 50% undervalued. See below. Pareto should issue their research any day. I bought Huddly few days ago. My target is 20 NOK.

Kyoto – IPO that failed this week. Launched at 62.5 NOK, trading at 40 NOK. Very solid company. I have been buying every day. This is the most creasy week of the IPO. Too many deals and almost all failed – they went down after launch. I wrote a detail post on this over the last few days. Kjetil Bohn from Quantafuel has 6% in this. I heard he was buying too. Do read my previou blog on this that describes where is the valuation. This is my top pick in this area.

Scandia Energi – Another failed IPO. It is now trading 2 NOKs below IPO price. Was placed by Sparebank, that has large retail following. Look at what their research did with Circa. I spoke to the Sparebank analyst, he indicated that he would be publishing soon. This could move heavily and quickly. I am buying today more.

Pryme – IPO placed three weeks ago. It is like a Quantafuel two years ago trading at a fraction vs Quantafuel. Pareto published today a research – summary below:

Pryme is a chemical recycler of plastic waste. The company specialises in scaling the pyrolysis process with a reactor capacity of 5-10x current industry standard. This makes it well positioned to capitalize on the growing plastic waste problem, where increased regulatory actions also will benefit the industry. With likely news flow on construction progress, industry partnerships, off-take agreements, recycling certificates and permitting of further plants, we expect the share price to move well ahead of production start at the first plant in Rotterdam next year. Upon success, this will position Pryme with a highly profitable and scalable business model. We also see significant share price upside based on pricing of peers and initiate coverage with BUY/TP NOK 150.

HAV Group – failed IPO placed by Fearnley. Very solid company. See below summary of Fearnley research published today. See below their summary:

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Energy Recovery is meeting investors this week. It has just released its new presenation. It provides a good update on the company activities. For this first time it talks about its gas product IsoBoost, that was sold to Saudi Aramco and is in very successful operation there since January, 2020.

It also provides details on its new Waste Water Product ZLD and on Vorteq

Please note, that the company and consensus sales forecasts do not include any revenues from ZLD, Vorteq and IsoBoost. This is all valued at zero. Under our analysis both Vorteq and ZLD has a much higher revenue potential than current water business. That is the reason, why we belive in significant share price growth over the next years.

The presentation does not talk about new refrigeration/climatisation product announced on Q4 call. The product has the highest potential from all products from the portfolio. The growth will be facilitated be regulatory elimination of the greenhouse gasses replacement with CO2 that comes into effect in five years. This will be a new milestone in ERII history.

I just listened to Garrett Soden, Africa Energy CEO at Pareto conference. He brought a few new information:

• he said that the 11B/12B Deposit should be valued “at least at 5USD per barrel”. That is substantially more than the 3-4 USD mentioned in the below article, that lead us to invest in AEC. That means that the value of the deposit is substantially higher. Look at the article below that will guide to make your ow assumptions and valuation. If AEC would sell 11B/12B this year as the CEO repeatedly indicated, the value should be multiple time higher than its current market capitalization. We are long AEC.
• He also mentioned that the SA Government negotiations should be concluded this year. This is what was the major drag on the share price lately.
• He also stated, that we should expect positive news flow in the near future on the Block 2B drilling.
• https://seekingalpha.com/article/4395266-giant-hydrocarbons-discovery-total-and-africa-energy-better-expected

Kyoto Group, an energy storage company started trading in Oslo. The IPO was launched at 62.5 NOK, but the share price went 25% down quickly to around 48 NOK. I called the brokers enquiring what happened. The explanation was: the company did previous funding round only in December 2020. At that time people were able to buy the shares at 25 NOK. So the December buyers sold now into the IPO crashing it. It is surprising conduct by the bankers. It should have been clear to them that this could happen. It is one of the worst performing IPO this year. I would be surprised if someone would not get fired over this.I am still trying to find out, what lock ups they did for the December buyers.

The IPO is down 25% this morning, I believe it is very attractive. I bought in the IPO and I bought a bit more today.

As I wrote in my blog yesterday, Kyoto has a similar product to Azelio. They are in the same stage of development – they are both scheduled to deliver their first products this year. Kyoto has strong partners and strong backing shareholders (CEO of Quantafuel for example). Azelio was a darling of last year. The share price multiplied. Azelio now has a 15 times higher market capitalisation compare to Kyoto. I am sure there are differences, but the valuation gap seems to be quite attractive.

Kyoto Group (www.kyoto.group) launched its IPO through Fearnleys and Sparebank. The shares should start trading this Wednesday. Link to the investor presentation is below:

Why is Kyoto interesting?

Kyoto is very similar to Azelio. See below the share price of Azelio (https://www.azelio.com/). BOth companies offer a similar product. They are in similar stage. Both are due to deliver its first product to customers this year. Both are ramping up their production capacities. There is one big difference. Kyoto at the IPO price is valued at 550 mil NOK. Azelio has a market capitalization of 5.8 billion SEK. So the market capitalization of Azelio is 10x bigger than Kyoto. That does not seem right for two companies, who have a similar product and are at similar stages of launching it. Based on this back of the envelope calculation we entered into Kyoto.

Do look at Azelio share price movement. Since its IPO. The share price has multiplied. Kyoto should act similarly.

SpareBank just issued analyst report on one of our larger positions. This seems to be no brainer investment. You are buying a company for cash it has. We have devoted one of earliers blog post on this when Fearnley issued their reseach on MPCES, which was equally bullish. The company is down due to overall sell off of the renewables sector. We have been increasing our position this week.

Sparebank: MPCES – PRICED AT CASH DESPITE SIGNIFICANT VALUE POTENTIAL IN FIRM BACKLOG

Following the recent private placement in MPCES, the company holds a cash position of ~USD90m or a cash value per share of ~NOK34.5/share. This stands in contrast to a current share price of NOK35.5/share and, hence, MPCES is priced at a minimal premium to its cash position. In our view, the company is heavly undervalued, and we will try to explain why in the following bullets.  

• The company holds a firm “execution pipeline” (firm backlog in usual terms) of 77MW, with a combination of operational assets and assets under development. The capital investment in these projects amounts to USD72m. Equity funds are available after the latest capital raise and the final investment decisions on all of the execution pipeline projects are expected to be reached within Q2 2021. The operational assets in the execution pipeline, “Honduras” and “Puerto Rico” (75% of total capacity), will thus generate revenue to MPCES already within the next couple of months. The company has guided equity IRR’s in the range of 12-16% on its execution pipeline. Further below, we provide a sensitivity to the share price value at different discount rates, assuming MPCES is able to achieve only a mid-range on its guided equity returns. Bear in mind, 75% of the projects are already operational, and it should thus not be all that difficult for MPCES to give a comfortable guidance.

• In addition to its execution pipeline, MPCES hols a backlog pipeline (backlog in usual terms) of 207MW. 84% of these projects are under exclusivity or have the right of first refusal. The backlog pipeline is also a combination of assets in operation and under development. The company guides equity IRRs in the range of 11-16% on these projects and the company expects to reach a final investment decision on all of the projects within Q2/Q3 this year, dependent on additional funding.    

• Also, MPCES holds 333MW of assets (early stage development projects) under ownership, which it received as a payment from the sponsor during the recent private placement. Santa Rosa, a 20MWp Solar PV project, is expected to start construction already by Q3 2021 and the project is fully funded.  The remaining 6 projects, 5 in Colombia and 1 in Jamaica, are expected to reach construction in parallel or after the backlog pipeline is developed. The Colombia projects and Jamaica project are both dependent on additional funding.

• Finally, in its admission document in relation to the listing, MPCES stated that it has a 92% exposure to corporates and privately held utilities and only 8% exposure towards state-owned utilities. This is  an exposure which in our view is preferable as we believe it easier to claim payments from customers that have a direct benefit from your offering (more expensive to pay for grid electricity) than from governments who’s rationale has been to accelerate the growth of renewables rather than focusing on profitability.   

Aker Horison (AKH) sold off together with the Scandinavian renewables sell off. The stock is down from 50 NOK to 30 NOK in four weeks. The company was hammered by the miss-priced IPO of Aker Clean Hydrogen (ACH). Pareto and ABG Sundal came with bullish reports on AKH today which drove the share price 8% up. Price targets are still 100% higher. If we would not have a large position in AKH, we would be buying at these levels.

One of our favorite stocks Biovica presented its quarterly numbers. The company has development an early diagnostics for cancer detection. The company has done multiple studies with the most prominent US hospitals (do look at the presentation for the list). The biomarker is now in the FDA approval process which should be completed in Q2/Q3. The number of successful studies from Mayo clinic and similar increase confidence in the case. The stock has sold off recently without any reason. We have doubled our stake during the last two weeks. It is a medium size position for us. If FDA approved the share price should reach triple digits. Expected this year.

https://tv.streamfabriken.com/biovica-international-q3-2020-2021?seek=269

The sell off in renewables might be stabilizing. Our favorite stocks worth your look are Norske Skog (transforming from paper into green packaging), MPC Energy Solutions and Circa. There are more information in older posts in this blog.

Next Biometrics – after the major client announcement last week the stock catapulted from 7 NOK to 10 NOK. We sold 25% of the postion above 10. We have bought the stake back below 9 NOK. Our target is 40 NOK. See the article on SeekingAlpha for the investment story based on Pareto analysis. More info on NEXT is in previous blog posts here.

Africa Energy Corp. announces that the Company’s President and CEO, Garrett Soden, will be presenting at the Pareto Securities Virtual E&P Independents Conference on Thursday, 25/3, at 11:10am CET.

The presentation will be available on Africa Energy’s website