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Nekkar ASA (NKR.OB 0TT.DB) writeup

Nekkar ASA
@FeathertopCap // @ajb_02
Market cap
123m (USD)
Shares outstanding
4Y Price return
Company reports in Norwegian Krole.
Balance Sheet
Return on
Capital (5Y
Return on
Common Equity
(5Y Avg)
Return on
(5Y Avg)
Return on
Earnings Yield
FCF Yield
LTM EBIT yield
Dividend yield
Growth (5Y)
Gross Margin /
Operating Margin
47.1% / 28.7%
Adjusted Debt
to Equity (%)
Piotroski Score
Altman Z Score
Cash Conversion
Cycle / Days Sale
Asset Turnover
/ Asset
109 / 126 days
0.9x / 17.7%
An M-Score of less than -1.78 suggests that the company will not be an earnings manipulator. An M-Score of greater than
-1.78 signals that the company is likely to be a manipulator
Page 1 of 32
Elevator pitch
What is the opportunity? Nekkar is a small/obscure industrial company based in Norway
that operates in a concentrated oligopoly, where Nekkar is the largest player in the space
and claims to hold an eye watering 75% market share of ‘shiplift’ installations through its
flagship product, Synrolift™. It has a hidden software arm within a ‘boring’ shipping
business, and two potential moonshot products in development stages (one in aquaculture,
the other wind energy) that come with the company for free*. It trades at an EV/EBIT of
6.6x, a P/E of 8.7x, gross margins of 47% and high (~45%) returns on capital. It has no debt,
no preferred stock, options or convertibles. A DCF calculation suggests an approximate
50% margin of safety (with a bearish discount rate and growth assumptions, with no multiple
re-rate). While revenue is linked to lumpy, large bespoke construction contracts - half of the
company’s construction revenue is paid for up-front by customers, reducing customer risk
and evening out revenues. Perceived moats are: 1) barriers to entry 2) proprietary
technology/designs 3) pricing power through assurance benefits to customers. The firm has
a mild cost advantage vs competitors (by subcontracting construction).
Why does the opportunity exist? The company has just come out of an adverse
arbitration/settlement regarding the sale of its legacy cargo assets to McGregor. The
company accurately provisioned for the down-adjusted price payable on the sale contract
(was due to liabilities accrued through the now sold Chinese assets). Having sold its
cargo/crane business (along with the legacy brand, ‘TTS’) the company is now deriving
~90% of its revenues through the Shiplift segment of the business, a rare oligopoly. The
ex-CEO also resigned in late 2020 (on ‘good’ terms) but I presume due to the botched
management of the McGregor transaction and the transition of the company’s focus away
from cargo and toward shiplifts and the ‘moonshots’, though this certainly doesn’t come
across in official messaging - just my inference/best guess. These factors may also explain
the valuation gap, in addition to the fact that it is extremely obscure/small - it is only covered
by one analyst with a price target around the current price.
Strong predictable cash generation (Y/N)
Yes, at least in the last 3-5 years.
Sustainably high returns on capital (Y/N)
High ROC, ROIC and ROE
Attractive growth opportunities (Y/N)
> Recurring service revenue opportunity
> Structural tailwinds
> 2 embedded moonshot technologies
● High barriers to entry where the firm has a majority market share already, proprietary
advantages through patented technology
● Market is comprised of regional monopolies
● Good margins
● High returns on capital
● Hidden moonshots within the business
Page 2 of 32
Subcontract out construction (but keep design inhouse). This allows for lower capex
and therefore lower prices in the bidding process while maintaining a decent margin this is probably what has allowed them to become the industry leader by market
capture. However, not being vertically integrated, they do not have control over the
construction process - being a potential risk where brand power and reliability is
extremely important for the business.
● Corporate customers, large projects with focus on costs and a bid/tender process.
Not a good price environment. This is partially offset by constructing offshore (where
their competitors construct onshore). Offshore construction isn’t a moat though.
● Competes against the son of the creator of their patented technology.
● Investor sentiment softened due to an arbitration (now settled)
● Management limbo (underpaid interim CEO), not an ideal comp structure, no red
flags though.
● R&D is capitalised not expensed under IFRS - margins may appear better than they
really are.
Ahoy mateys! I am going to take a position in the company. The stock price is forming a
base of support at 9NOK, which is only 2NOK above the firm's earnings power valuation as
of today (and substantially below my calculation of intrinsic value). Stock is currently trading
just north of 9NOK. I’ll need to take a position through its dual listing, DB:0TT on the
Frankfurt Exchange, due to broker requirements.
Fair Value DCF EBITDA Exit (5Y):
14.78 NOK
Current price
10.00 NOK
47.79% margin of safety
Assumptions in the DCF:
1. Discount rate: 10%
2. Growth into 2026 is as follows:
3. Exit EBITDA multiple: 7.1x (current multiple, assumes no multiple expansion).
4. EBIT margin of 21% is sustained through to 2026.
5. CAPEX remains 3.4% of revenues (used the average over the last 5 years).
Page 3 of 32
Company Summary
The Company has 3 main business arms, one is the crown jewel revenue generator, and the
other two are our ‘Moonshots’.
“Syncrolift” shiplift solutions
“Starfish” open-ocean fish cage
“Skywalker” wind turbine installation solution
It also has a digital solutions arm which provides services to the three main business units
(and other businesses) which it holds 51% of.
It has 63 employees, is HQ’d in Kristiansand Norway and is listed on the Oslo Stock
Exchange (with ADR filings elsewhere). It holds subsidiaries in Norway, USA and Singapore.
It has a sales/service office in Dubai.
The company has “a 50 year heritage business” created out of the “world’s number one
shiplift company, Syncrolift”. Management proclaims that they are the “global market leader
for shiplifts and transfer systems offered to repair and new-building yards”. The other
business arms are moonshots/high disruptor businesses that are in early product
development stages.
The crown jewel revenue generator for this business was purchased off Rolls Royce in 2015.
The asset deal gave Syncrolift ASA (then TTS Handling Systems AS) an exclusive and
unlimited right to conduct future business based on Syncrolift™ products and relevant
intellectual properties and includes takeover of drawings of 250 shiplifts, patents and the
brand (Syncrolift™).
The Company sold to MacGregor/Cargotec in 2019 its legacy offshore assets business.
Those assets were the company’s cranes and winches, internal and external covers and
doors, handling equipment for offshore construction and support vessels for drill ships, rigs,
accommodation and service units and heavy lift and utility ships, as well as the ‘TTS’ brand.
The company’s history from 1999 through to 2015 (particularly the early 00’s) saw the
company create numerous JVs with Chinese entities to engrain itself into the Chinese
shipbuilding industry with a focus on cargo and cranes (which have been sold off). These
JVs (loss making) have largely been sold off to Cargotec. The Company’s renewed focus is
on taking the revenue from its oligopoly crown jewel and using it to reinvest into that
business, plus two in-house moonshot products.
The service or product offering
Syncrolift / Shipyard solutions
Page 4 of 32
The Shipyard Solutions segment includes shiplift, docking/transfer systems and related
service activity for shipyards. The main operating entity in this segment is Syncrolift AS with
its head office in Vestby, Norway. As noted above, Syncrolift was acquired from Rolls Royce
in 2015 (who had originally bought it off the founder, who is now a competitor to Nekkar - see
Competitors below). Syncrolift has a local presence in important markets through
subsidiaries in the US and in Singapore alongside a sales/service office in Dubai. Note
though that the vast majority of the company’s revenue is derived from its Shipyard solutions
in the South/South-East Asian regions and Europe. It faces competition in the US from two
main competitors.
A shiplift is a large elevator platform that raises the ship out of water for dry-docking ashore
and lowers it back into water after completion of work. It is also used to launch new ships
from shipyards. The ship transfer system has electro-hydraulic trolleys, which are designed
to transfer ships from shiplifts to dry berths on land. Shiplifts & transfer systems fall into three
categories: winched, hydraulic lift docks & floating dock lifts.
Syncrolift is the self described global market leader for shiplifts and transfer systems offered
to repair and new-build yards. They claim to have about a 75% market share.2 They deliver
turnkey, customized solutions to commercial yards and navy bases around the world. Most
revenue is paid upfront and is for bespoke, engineered-to-order shipyard solutions. The
product range includes shiplifting systems for launching and retrievals of vessels and
transfer systems for a fast and reliable way of moving vessels around the yard. They also
deliver FastDocking™ products for efficient operations during docking and maintenance of
vessels. The Company claims that 90% of shiplift systems globally are Syncrolift™
installations. However Syncrolift/Nekkar ASA only serve ~15% of its total combined installed
base with services and aftermarket part provision. The company’s targeted focus going
forward is to acquire the recurring revenues associated with servicing and repairing their
own product installations.
Nekkar doesn’t build the shiplifts themselves, but are instead doing the design and drawings
of new lifts which usually are highly customised. The assembly of new lifts is sub-contracted
to third parties, often in Asia which is the largest market for shipyards. On one hand you can
argue that Nekkar should be in control of their own production, but on the other hand the
company is not very capital intensive (capex and D&A of ~1% of sales), which enables high
return on capital and strong cash flow conversion. This structure also enables a great
cost-advantage to its competitor Pearlson that assembles their lifts in the US (presumably to
a much greater cost). The lower EBIT margin has allowed Nekkar to offer their lifts with a
lower topline cost in RFPs/tenders (beating out competitors) and still generate high margins.
In FH FY21, the main revenue stream for the business was related to the new building
construction contracts in Shipyard Solutions which accounted for more than 90 percent of
revenues.3 The group’s revenue derives from contracts with customers in one of the
Page 4,
Note that revenue is booked per IFRS 15, meaning it is recognized when a customer obtains control
of the goods or services. Determining the timing of the transfer of control, at point in time or over time,
requires several judgmental factors.
Page 5 of 32
following revenue streams;
1. Long-term construction contracts (engineer-to order), where either:
a. The company has no other use for the goods (i.e. they are highly bespoke) in which case revenue is recognised over time in accordance with the
percentage of completion method under IFRS 15; or
b. The company may have another use for the goods (i.e. they could be adapted
to another client) - where revenue is recognised when the goods are
delivered to and accepted by the client.
2. Service contracts - where revenue is recognised over time; and
3. After sales (parts, replacements) - where revenue is recognised when the goods are
delivered to and accepted by the client.
Long term construction contracts have a typical duration of 18-48 months (from the date
contracts are signed to the date projects are closed). These projects are engineer-to-order
projects, which deliver highly customized turnkey systems for shipyards around the world.
Revenue is measured based on the consideration/contract price specified in a contract with
a customer.
The breakdown of project revenue by category is as follows:
Company aims to create more recurring revenue. Adhoc services and spares are aiming to
be developed into inspections, guaranteed expert services and predictive maintenance to
create “lifetime partnerships” with customers. This service/maintenance work would include:
● Control systems light upgrades
● Complete control systems upgrades
● Midlife modernisation
Page 6 of 32
Capacity upgrades
Total replacements
The Company aims to lock the installation clients in with decades-long service contracts. For
example, for a Navy client in south-east asia, after a life extension project is completed
(August 2021), Syncrolift Singapore will enter into a 20-year service contract for the same
They have an order backlog of NOK 1 billion, which is its highest backlog figure yet.4 The
backlog is intended to provide the company with work for years to come. The Shipyard
Solutions business area has not lost any tenders in the second quarter of FY21, but at the
same time, have not been able to tender for as many jobs as they were in the same period
last year. No newbuild contracts have been tendered for so far in 2021. Order intake for new
deals was down this half, in line with Company expectations (and in light of the backlog, not
a huge problem… for now):
COVID has created a slowdown in the newbuild decision making process which the
company expects to alleviate as the pandemic passes.
The below shows the regions where Syncrolift installations have been made.
Order backlog represents the estimated value of remaining work on signed contracts.
Page 7 of 32
“Starfish” is a solution that could reduce operating expenses dramatically for the fish farming
industry, while simultaneously improve fish welfare (captures 90% of biological waste, avoids
problems with salmon lice, and is double bagged to prevent escapes). Fish farming has
structural macro tailwinds (especially in Norway), growing population/food demands etc.
SaaS opportunities in connection with the cage are:
● Cameras under and over water level
● Compressors
● Flow sensors
● GPS for external data (wind etc.)
● Sludge management
● Inlet pipes, pressure and ocean current management
“Starfish” appears to be intended to work along with Aquarius (an open source, web-based
software backed by the EU) to automate aspects of fish farms (feeding times, fish health,
scheduling and AI analytics) in addition to the net itself. The net is still in testing phases.
● Prototype wind turbine installation system (for on and offshore).
● Current wind turbine installation requirements need 80 trucks and large mobile
cranes. Skywalker only needs 8-10. Les OpEx for customers. In addition, assuming a
20 turbine park:
○ Less space is required (the solution allows more wind turbines to be placed
closer to one another, reducing square meterage required by 63%)
○ 88% reduction in Co2 emissions (transport costs)
○ 82% reduction in hours to prepare the farm
Page 8 of 32
Status: Innovation Norway 21.5M NOK funding grant has been approved. Concept
design development is complete. Q4 ‘21 planning for test of prototype on site.
Cooperation with turbine OEM and Fred Olsen Renewables.
Digital solutions / Intellilift
The Digital Solutions segment is the competence hub that serves the other business
areas in Nekkar along with external customers outside Nekkar. The business
segment possesses unique competence within engineering, electrification,
digitalisation and automation. Intellilift AS, 51% owned by Nekkar, is the driving force
behind the Digital Solutions business segment and the company aims to develop
open software platforms for collection, monitoring and control of data for numerous
This team mainly provides software services to the other business units (especially
the Starfish and Skywalker) but also works on Syncrolift which is:
○ A business which was acquired in April 2019 (51% of the shares) in Intellilift
AS, a software company established in 2017 with ambitions to develop open
software platforms for collection, monitoring and control of data for the
aquaculture industry and a variety of offshore energy industries.
○ Remains 51% owned by Nekkar. Concerningly 21% of the shares were
acquired from Skeie Consultants AS. 5
○ High-end automated lifting, handling and drilling equipment which allows
Syncrolift to be the facilitator for efficient information flow between oil
companies and drilling contractors.
○ Through its Remote Operator Environment software, Phoenix, offshore
operators can be located anywhere on a vessel or onshore. The efficiency of
our solution comes in the multitude of control systems built into a single chair:
crane; gangway; cargo logistics system or any other complex machinery.
Skeie Consultants AS, which is owned by primary insiders of Nekkar ASA, holds 19.9% of the
shares in Intellilift AS as per 31 December 2019.
Page 9 of 32
Two out of three first Syncrolift projects have been commissioned. One is a
five year contract with a US customer.
“Solid leads” on oil & gas SaaS projects upcoming, according to
Top-tier end customers AkerBP (drilling operations) and Ørsted (offshore
Revenue breakdown and reporting lines
Revenue breakdown is as follows (Other = Skywalker and Starfish)
Geography for revenue breakdown is as follows:
Reporting lines are:
Shipyard Solutions: Rolf-Atle Tomassen
Aquaculture: Mette Harv
Renewables: Mette Harv
Digital solutions: Stig Trydal
Unit economics
How does the business make money?
Nekkar tenders for major engineering contracts, usually for new ports, or port
expansions/upgrades. If successful in the tender process, the company signs a bespoke
engineered-to-order construction contract with the client with a duration of somewhere
Page 10 of 32
between 18-48 months. This is the main source of revenue for the business. It also
generates revenue by signing contracts for delivery of pre-designed products (configure
to-order) or parts/support services.
Order intake and order backlog are presented as indicators of the company’s revenue
generation and operations in the future given the nature of large sum infrequent contracts
that the company signs.
“Order intake” includes new signed contracts in the period in addition to expansion of
existing contracts and any cancellations of contracts. For new build contracts, the order
intake is based on the signed contract value excluding potential options and change orders.
For service contracts, the order intake is based on the value of the service orders received at
Order backlog represents the estimated value of remaining work for signed new build
contracts and the value of service orders (included in the order intake defined above). At the
beginning of 2021, Syncrolift AS has secured a solid order backlog for its 2021 new building
business that is expected to sustain the company for years. The focus is now to seek
recurring service revenue through a stronger services/support division. Scheduled deliveries
for the current project portfolio extend into 2024, indicating the business has infrequent but
extremely long duration contracts which could produce lumpy financials.
How capital efficient is the business?
The company treats working capital as short term assets, less bank deposits and cash in
hand, less current liabilities adjusted for short term financial debt.
Following turnover/efficiency ratios are below.
Efficiency Ratio
Median among comps
Inventory Turnover6
Asset Turnover7
Gross Margin
Operating Margin
Is D&A less than 10% of
Gross Profit
Yes (1.15%) - D&A: 2.44m, GP: 209.1m
The inventory turnover ratio measures a company's ability to manage its inventory efficiently. A low turnover
implies weak sales and possibly excess inventory, also known as overstocking. It may indicate a problem with the
goods being offered for sale or be a result of too little marketing. A high ratio, on the other hand, implies either
strong sales or insufficient inventory.
The asset turnover ratio measures a company's ability to efficiently generate revenues from its assets.A higher
asset turnover ratio means the company's management is using its assets more efficiently
Page 11 of 32
Q: Is Plant, Property & Equipment (PPE) stable?8 Better has PPE shrunk over time?
Yes. A bit cyclical, but overall stable.
2020: 12.3
2019: 7.1
2018: 13.6
2017: 7.3
2016: 94.3
The business presents strong margins at a glance. However, they are also capitalizing
development costs onto the balance sheet rather than expensing them in the income
statement. This is fine under IFRS but not US GAAP. Capitalizing costs inappropriately could
be making the company’s profit margins appear higher than they are. Warning signs that a
company may be capitalizing costs inappropriately include:
Surprising or unrealistic profit margins combined with sudden drops in free cash flow
Increases in capital expenditures
Rapidly growing fixed or intangible assets recorded on the books
Under IFRS (which the Company complies with, rather than US GAAP), R&D costs can be
capitalised on the balance sheet if the company can prove that the asset in development will
become commercially viable (meaning the technology or product in development is likely to
make it through the approval process and generate revenue). IFRS requires judgment and
subjectivity, which creates a risk that managers will be overly optimistic about how
commercially viable a new technology is. Keep in mind that without the capitalization of R&D
spending, it is more challenging to compare companies in the same industry, as the timing of
their research spending can have a big impact on their bottom line in a given year. This will
also restrict which comps I can use for valuation and ROIC / ROA.
Customer type
Unfortunately we add a con to the investment thesis here. All clients are corporate, and
what's worse is that they bid through a tender process. This is the worst method of acquiring
and securing business as it encourages a race to the bottom on price, and danger to a
business’ gross margin. Corporates pay a lot of attention to high priced transactions, and
less to low priced transactions, irrespective of volume - which don't require management
signoff. Unfortunately, Nekkar does infrequent, large priced projects - the exact kind of cost
corporate customers typically try to negotiate down. What's worse is that products are sold
through bidding processes or organised negotiations (such as Nekkar’s tender processes).
The more the decision is driven by price, the worse it is for the seller. On the upshot,
corporates tend to prefer assurance benefits which Nekkar comes with. The consequences
Generally, you want stable PPE – can be declining over time (due to depreciation) and sometimes it will be near
zero if the business is super capital light. You don't want a constant requirement to invest in more and more PPE.
Page 12 of 32
of failure are dire (‘nobody ever got fired for buying IBM machines’). This allows Nekkar to
maintain decent margins despite the operating environment and nature of its customers.
Company focus
The firm’s products are:
a) needed for survival, or desperately
desired without a close substitute;
b) not heavily regulated.
Sea transport is cheap and more energy
efficient as compared to other modes of
transport. Currently, seaborne trade
accounts for over 90% of the global
overseas trade. The business’ products are
needed for more ships to be put to sea (and
to be maintained for longer).
The firm’s products or services are unique,
and non-commodity like
Products/services are highly bespoke from
customer to customer.
The firm is solving a simple problem that I
The firm is not subject to massive
technological changes.
No. Syncrolift has been the market leading
technology for shiplifts for decades.9
The firm has tailwinds, not headwinds, in
obtaining growth.
There are identifiable customer benefits:
● Intangible benefits (taste, brand,
● Assurance benefits (I’ll pay anything
for this to work properly)
● Convenience benefits (I’ll pay
anyone to deal with this this
because I don’t want to deal with it)
Clear assurance benefits for the customer not hard to imagine how a failed shiplift
could catastrophically damage a shipyard’s
image, reputation and financial stability.
There are subtle benefits too. A more
efficient yard means that shipyards can
service more ships, process more cargo,
and lower their OPEX.
I understand the fundamental aspects of the Yes.
business and it is within my circle of
Growth plans
Financial and intellectual capital is drawn towards ideas that can change the world, and make big money fast. Operating in a
niche, obscure industry (such as Shiplifts) will carry less disruption risk.
Page 13 of 32
Underlying EBITDA is growing with margin expansion. Order backlogs are growing. The
underlying business is experiencing organic growth. Its the old/core product that sells hard.
New products currently account for ~5% of Syncrolift sales.
Management states that ~90% of shiplifts globally are Syncrolift / Rolls-Royce installations
(designs & drawings owned by Nekkar), however Syncrolift only serves ~15% of its total
combined installed base with services and aftermarket part provision. This is where the
Company is trying to drive growth through stronger partnerships with customers by taking
market share, principally off Pearlson which service a lot of Nekkar’s installations.10
Repair maintenance and overhaul revenue - usually corporate purchasers of equipment, is a
proven recurring revenue model. Generally the more complex, expensive long-shelf life and
deadly/loss heavy for failure the better (jet / ship engines are a good example - shiplifts too).
Generally where the risk of loss is so dire, you want the manufacturer repairing and
maintaining not the cheapest alternative. Unfortunately, ex-management at Nekkar failed to
see this and ceded much of the service revenue they could have captured to their main
In addition, the shipyard solutions unit provided a more environmentally friendly shiplift to
Skarvik AS during COVID. The solution has “attracted attention in the market”, and the CEO
“expects this to be an industry standard in the years to come”. However, Syncrolift’s
inspection services have been suffering due to travel restrictions and closed borders more
What I really like about this business structure is that geographic expansion is going to be
extremely difficult for Nekkar’s competitors, and the marketplace is composed of regional
monopolies. Pearlson dominates the Americas, Nekkar dominates Europe and Asia, and
While gaining market share is the best source of growth, it is difficult to maintain. Taking a competitor's
customer is easy at first - getting the low loyalty customers first and fast- but as time goes on you need to entice
the harder won customers which is more difficult and may involve larger margin erosion. While growing from 50%
to 51% market share is insignificant in the grand scheme of things, going from 1% to 2% doubles the company’s
customers - massive. So a low base of 15% means that there is meaningful growth available in this segment of
the market.
Page 14 of 32
Bardex is growing a niche in France. All parties are clearly able to extract value from the
market, but there is little room for new competitors to appear.
Perhaps the most nuanced and least weighted form of growth is structural. Ships are getting
bigger and more expensive. Shipping also remains the lowest cost form of transport - in a
commodity-like business such as transport of commercial goods, shipping has (and is
expected to have) a continued advantage over air or road transport. This is going to drive
(especially in the regions where Nekkar operates, such as Asia) a higher demand for
advanced ports and shiplift systems to keep expensive ships floating in the ocean
successfully for longer.
Moat / Competitive advantage
Prevalence of moat in financials
Gross margins vs public comps:
Page 15 of 32
Physical description of moat
Proprietary tech - Nekkar own the proprietary rights to Syncrolift shiplift systems, which
comprise the vast majority (according the company well over 75%) of shiplifts globally.
Cost advantages - Nekkar do the engineering and planning in-house but subcontract out
the construction of the shiplifts. Their competitors, including Pearlson, construct the shiplifts
themselves. This allows Nekkar to be more competitive on price in the tender process
without compromising margins. This is a weak moat given competitors could reasonably
replicate the cost advantage should they choose to do so.
Barriers to entry - assurance benefits (i.e. the consequences of a provider getting it wrong
are di) require strong brand and reputation in the market. This deters new entrants with no
track record. Nekkar (formerly TTS) has a significant deal list, huge amounts of industry
recognition and owns the market leading product. Shiplift and hydraulic engineer
Moat weak spots
Switching costs / Pearlson - my main concern here is that while Nekkar do a lot of project
installations, they do very little service revenue on those projects. The fact that customers
can get the project done by NKR but have maintenance done by another company suggests
there is little to no ‘stickiness’ associated with their projects. As a result, Nekkar’s attempts to
capture more market share of services revenue may prove to be more difficult than initially
expected. The switching costs would also be low to move back from NKR to Pearlson, other
another competitor, and their increased foray into the services space may result in margin
contraction for services revenue to win the work off Pearlson. Management believe that
acquiring more services work will also result in better positioning for project work going
Page 16 of 32
forward. I take that with a grain of salt given that strategy hasn’t worked for Pearlson which
has a large service revenue base. Might not be a fair analogy, since Pearlson lack design
rights for the Syncrolift system and presumably the manpower/resources to do full builds
locally at a good price.
As noted above, the Company has a massive 80% of global market share in Shiplift
solutions and operates in an oligopoly where it is the largest player. Its main competitor is
Pearlson, which is based in the US.
1. Pearlson: In 1958, the Founder of Pearlson invented Syncrolift. The founder sold his
company (including Syncrolift) to Northern Engineering Industries (NEI), a British
engineering group that in 1989 became part of Rolls-Royce, plc. In the early 90s, the
Founder and his son created a shipyard consulting firm, specialising in drydocking,
named Pearlson & Pearlson. In 2008, Rolls Royce closed their Miami HQ for
shiplifting, the Founder’s son ‘rounded up the old team’ before Rolls Royce got
involved and created a shiplift company. In 2015 Rolls Royce sold its Syncrolift brand
and technology to Nekkar ASA (then TTS Group), with non-competes for Rolls
Royce, but obviously Pearlson were unaffected. Pearlson occupy this site:
https://shiplift.com/. They claim to possess “the most experienced team of shiplift
engineers and technical support specialists in the world” and claim to be the “premier
choice for shipyards all around the world”. They are careful not to pass off Syncrolift
as their own (but do note that the founder created the technology). They have
recently done the following:
a. 9 new orders for shiplift systems; and
b. These orders include four superyacht repair facilities and the largest shiplift
system in north america in support of the US Navy, partnering with shipbuilder
Fincantieri Marinette Marine.
2. Bardex Ship Elevator: which claims that the elevator system and complementary
Shipyard Transfer Systems focus on improved safety and economy, simplicity of
operation, and lower maintenance costs. Capital and operational costs can be
reduced by as much as 50% when compared to other systems. The use of chain in
our systems provide a superior and dependable lifting element with internal strength,
integrity, and a useful safe life many times that of a conventional wire rope. These
guys are based in Goleta, California, U.S.A but have offices all around the US and
one in Korea (where they provided their first solution to a Korean marine company
called KTMI in 1970). Recent deals include partnering with Matiere for the design and
manufacture of the 4,300 Te Atlas Megayacht Shiplift for La Ciotat Shipyards (La
Ciotat, France), with delivery slated for 2022. They have a flawless safety record for
all of the company’s shiplift systems since 1975.
Total list of major players in the space include:
Bardex Corporation
Bosch Rexroth AG
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Damen Shipyards Group
Larsen & Toubro Limited (LSE:LTOD)
Maschinenfabrik Bröhl GmbH
Pearlson Shiplift Corporation
Ra In Ho Co. Ltd.
Rolls-Royce Holdings PLC
Royal HaskoningDHV
TPK Systems Pte Ltd
Public Comparisons used for comps
ITD Cementation India Limited (BSE:509496) constructs ship lifts and marine installations,
amongst other things, so not a great comparison but tangentially related.
Havyard Group ASA (DB:1H2) is a shipbuilding technology producer that sells to shipyards.
They don’t do shiplifts though.
Larsen & Toubro Limited (LSE:LTOD) is an engineering firm. They do shiplifts, but also
other projects - so not a direct comparison.
Porter’s five forces analysis:
1. Ease of entry for new participants to the marketplace
Low. Large technological/CAPEX/R&D startup costs. Brand/image for reliability is critical
given nature of the highly bespoke/turnkey products.
2. Number and activity of the company’s rivals
Very few. Of those that are active, Nekkar is the dominant player.
3. Possibility of a new good coming into the market and eroding sales
Potential, but the underlying shiplift technology which Nekkar uses has been around for half
a century.
4. Bargaining power of industry suppliers (the less the better for our company)
As the firm outsources construction to low-cost jurisdictions with little differentiation this
would appear at first blush to be a good thing - but the Company will prefer to use the same
contractors to ensure continuity/quality in the absence of vertical integration.
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5. Consumer bargaining power (the less the better for our company)
Bit of a hit for the company. Due to the bid/tender process and overall high cost, as well as
the nature of the corporate customer - the consumer has strong bargaining power.
Debt - company has virtually none and doesn’t appear to need it in the near term.
Exchange rate / currency risk - The reporting currency for the group is NOK (Norwegian
krone). As substantial parts of both income and expenses are denominated in foreign
currencies, fluctuating foreign exchange rates may affect the group’s operating results. The
Company guards against this using hedging instruments on a 24-month period for firm
contracts for sale in currencies other than NOK. Nekkar is using hedge accounting for FX
contracts that qualify for hedge accounting (IFRS 9), while the remaining FX contracts are
measured at fair value through profit and loss.
Credit risk - on its own books, low given lack of debt. For its customers, the latest report
says that “developments in the part of the shipyard business applicable for Syncrolift have
historically resulted in only modest losses on payments from customers, however a bad debt
provision of NOK 13 million is included in the 2020 figures due to uncertainty for payment in
one project”. The company has limits on credit availability and continually looks to limit this
risk - so at least they are aware of it.
Liquidity / rates risk - non issue as they are debt free. A lot of shipbuilders are highly
levered which is a potential risk but too remote to meaningfully measure.
R&D blowouts - potential for this to occur with two ongoing ‘moonshots’. Management
discretion required based on outcomes of pilot tests being done.
Market risk - inherent.
Inflation - the company holds significant bank deposits (about half its assets). It has little to
no debt. As a result, inflation and increased rates stand to benefit the company. One
downside is that the contract terms and prices for large projects are negotiated upfront, and
I’m not aware whether the contract prices are CPI pegged or something (unlikely). Ideally
any offset in contract prices due to inflation are padded out by gains on bank deposits...
Capitalised development costs - the firm carries a sizeable development cost:
This is related to ongoing research and development (“R&D”) projects and includes
materials, direct salaries, personnel and other external costs. The R&D activities are across
the whole group. NOK 14.0 million was capitalized in the first half of 2021, and is derived
from Starfish, SkyWalker and product development within the Digital Solutions segment
which are in the early-mid stages of development.
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Management take the view that capitalised R&D has shown good signs of fruitful results:
● Successfully commenced ocean testing of Starfish, a highly innovative closed fish
cage solution that is designed to reduce environmental impact and operating
expenditures for the fish farmers. Starfish has double protection against escapes,
avoids problems with salmon lice due to water intake from deep waters, and collects
up to 90 percent of biological waste.
● Completed pre-study of our new wind turbine installation technology, SkyWalker. On
7 April 2021, Nekkar was awarded a NOK 21 million grant from Innovation Norway to
progress with the development.
Concerning is the fact that the grant from Innovation Norway and SkatteFUNN (5m krone) is
treated as a reduction of capitalized development costs in 2020 so the underlying R&D costs
being concealed are much higher than they might initially appear. Further, management
expect R&D to continue to rise:
Nekkar’s R&D investments is expected to increase in 2021 with the continuing
development of Starfish, SkyWalker and our products within the Digital solutions
segment. Cost from other development activities related to customer specific
projects, may in some cases be charged to the profit and loss as an operating
The $16m goodwill charge on the balance sheet relates to one acquisition (Intellilift) in 2019
so no stale accrual of bad acquisitions.
Large bank deposits
Nearly half of the Company’s assets are bank deposits:
Strong pre-payments from customers may explain why the bank deposits are so high:
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TTS supplied equipment such as hatch covers, cranes, and dedicated side-loading systems and
external doors and called itself “the undisputed leader” in the heavy-lift marine cranes market.
The brand name (TTS) as well as these aspects of the company’s business were sold for an EV
of EUR 87 million:
The deal was announced in February 2018. But TTS Group had joint ventures with Chinese
state-owned shipbuilding companies CSSC and CSIC, which meant lengthy regulatory approvals
were needed. Closing of the Cargotec / McGregor transaction took place 31 July 2019. After
closing, McGregor argued about the purchase price and wanted a down adjustment for tax
liabilities in China.
On 11 January 2021, a global settlement agreement in the arbitration between Nekkar ASA
and MacGregor, a subsidiary of Cargotec Oyj, was reached. A provision of NOK 94 million
was made as per 31 December and the payment was performed at the end of January 2021.
Market responded positively.
Corporate structure
There are various intercompany arms-length agreements on “commercial terms” but the
largest red flag is are the control system deliveries from Intellilift to Syncrolift AS and the
management fee charged by Syncrolift to Nekkar. Given Intellilfit is only 51% owned by
Nekkar there is scope we’re getting a raw deal here (not sure if its worse that the chairman
owns 19% of Intellilift). Perhaps vertical integration is on the cards with a buyout but until
then we’re losing (a bit of) value in that particular integration.
CEO reshuffle
Preben Liltved was appointed interim CEO of Nekkar ASA with effect from 1 October 2020.
The CEO Toril Eidesvik “decided to leave Nekkar” and made an agreement with the Board of
Directors to be released from her duties end of 3Q 2020. Her agreement was a good leaver
agreement, where she was to continue to support Nekkar through the Cargotec / MacGregor
legal arbitration process for as long as it took. She went to work for the Port of London in mid
September 2020.
Contract risk
Loss making contracts are listed as ‘onerous contracts’ in the financials. The full loss is
recognized immediately if contracts are forecast to be loss making. The full loss includes all
relevant contract costs.
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For accounts receivable that are not yet due, the assessment is, based on previous
experience, that there is no need to impair the value. Accounts receivables relate to
independent customers who have no previous history of failing to fulfill their obligations to
the group. Invoicing is to a large extent carried out in accordance with milestonebased
progress in each project. A large part of the overdue accounts receivables is related to
invoiced milestones, i.e. prepayments for work not yet performed. Due to delays in delivery,
a considerable gap between due date and payment date may arise.
As of 31.12, the group had the following maturity distribution on its external customers:
The above table is presented net of bad debt provisions. As per 31 December 2020, a
provision NOK 13 million is included due to uncertainty for payment in one project. Hence,
the gross amount of accounts receivables > 6 months overdue is NOK 17 million.
This risk is generally guarded against by the fact that a huge portion of the work done by the
company is paid by customers upfront.
Customer risk
During 2020 BU SYS has five customers that each accounted for more than 10% of the
segments revenue. These customers generated revenue of MNOK 66, MNOK 55, MNOK
44, MNOK 43 and MNOK 36 respectively.
Warranty risk
The group customarily offers a warranty period of one/ two years on its delivered products.
Insider holdings
Have insiders been buying or selling recently?
Yes. Skeie Kappa Invest AS, a company controlled directly by Trym Skeie, the Chairman
of the Board in Nekkar ASA and primary insider, has on 28th of January 2021 purchased
250 000 shares in Nekkar ASA, at NOK 6.9 per share, from Skeie Alpha Invest AS which
is also controlled by Trym Skeie.
On 27 October 2021, Mette Harv, of EVP New Business, sold 40,000 shares at an
average price of NOK 4,98 per share. Following this transaction, Mette Harv holds
189,958 shares in Nekkar ASA.
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The Chairman (a VC and engineer by trade) has been chair since 2009 and holds about
30% of the company (see notes below).
Rasmussengruppen, the second largest shareholder, is an investment firm that specialises
in offshore work and shipping. Gisle Rike sits on the board to represent them and has done
so since 2015. His director fee is paid to Rasmussengruppen, not him personally. Bit
disappointing and a bit of a wasted board seat.
Ingunn Svegården and Marit Solberg both joined in 2019. Both have backgrounds in
biotech/chemistry. Ingunn is focussed more on VC work and Marit has a history with the
seafood industry and aquaculture.
Preben Liltved was appointed interim CEO of Nekkar ASA with effect from 1 October 2020.
He remains interim CEO - it's been over a year since he took the helm. I checked by email,
and he confirmed he remains interim CEO for now.
75% of the Company is held by the top 20 shareholders.
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Marit Solberg and Ingunn Svegården are independent of the major shareholders and
executive management. The Board does not include executive management.
Both Trym Skeie and Marit Solberg own shares in Nekkar.
The Board is directly responsible for determining the CEO’s salary and other benefits. The
CEO is, in consultation with the chairperson of the Board, responsible for determining the
salary and other benefits for the group’s other senior executives. The guidelines for salaries
and other remuneration is communicated yearly to the GM. The Boards’ view on
management compensation is that “it should be competitive and motivating, but not above
observed market levels. Bonuses are determined according to specific targets set for each
year. Bonus schemes are limited to a portion of the salary, increasing according to the
position category up to a maximum of 50% of base annual salary unless special
circumstances apply”.
Board remuneration is not linked to the company’s performance. There is no share option
program for the Board of Directors. Rem of the board of 30 June is as follows:
High amount of remuneration for Trym, seeing as he’s just the chairman. And a payrise in
2020! Presumably they pay him this in lieu of a dividend as the majority shareholder. No
stock compensation on performance metrics for any of the directors as far as I can tell. At
least they aren't getting free shares - a huge red flag. Would like to see some share comp
instead of $ for milestones based on ROE, ROC etc.
Executive shareholdings are as follows:
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The executive team is currently remunerated as follows:
Notably the interim CEO is being paid under half of what the previous CEO was being paid.
The interim CEO is the president of Eyde Mooring Solutions AS (he owns 24.7% of that
business) so potentially having to split his time/passion is not ideal. He holds a tiny position
in the company, rough numbers around 0.01% (maybe less). Preben has a background in
Science, Mechanical engineering + Management & BA, 16 years in Sales & Management
positions in Pusnes and MacGregor, and 10 years in Management positions in Goltens
Worldwide. His replies to my questions were candid and appreciated. At least the
shareholder interface is good.
🤮) but such is the nature of using an
A very nice hire-in fee for the Ernst and Young CFO (
external CFO.
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Reinvestment rate11
10% currently. Historically, this has been closer to 50%.
Historically, management have done way too much M&A:
Goodwill is basically gone
from legacy M&A after
the Macgregor
transaction, but was kept
relatively flat even during
the binge (signalling at
least the company did not
overpay). Note the old
CEO was at the helm for
virtually all of this, not the
new interim CEO - who is
firmly positioned on trying
to grow the service
Divide the company’s capital expenditures by the net income to determine the reinvestment rate. For example, if a company
has $100,000 in net income and $50,000 in capital expenditures, the reinvestment rate is equal to 50%. I.e. 50% of the income
that the company generates must be redeployed into the business to fund operations.
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Cash retention
Not a lot of buybacks
happening, no regular
dividends either (there
was a big one off
dividend after the
divestment). This is fine, I
would prefer the
buybacks to have been
done on the last hard dip
(which would have been
a good sign) but nothing.
Instead cash is being
reinvested in CAPEX and
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Debt reduction
(You can tell when the
divestment went through)
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Historically compounded
value per share in the
right direction but nothing
spectacular. BVPS is
declining as assets are
sold off.
Highly skilled managers
There are no restrictions to voting, or to the transfer of share
who respect shareholders ownership, nor are there any mechanisms in effect aimed at
preventing takeovers. Nekkar ASA has one class of shares,
and each share confers one vote at the General Meeting.
There is no specific representation – neither individually nor
jointly – for shares owned by employees of Nekkar.
Equal treatment of all shareholders is a core governance
principle. None of the Board members hold share options or
All information must be reported in English.
Strikes against them:
1. 21% of the shares in Intellilift were acquired from
Skeie Consultants AS. Skeie Consultants AS, which is
owned by Trym (the majority shareholder in Nekkar),
continues to hold 19.9% of the shares in Intellilift AS
as per 31 December 2019. Price paid was 15.3m
NOK. It's a bit shady. Preben assures me it's all kosher
(how could he not).
Intellilift did NOK 13.2 million in revenue and an
operational EBITDA of NOK 1.2 million in the first half
of 2021, compared to revenue of NOK 10.1 million and
an operational EBITDA of NOK 2.1 million
If we extrapolate this year’s half yearly EBITDA out for
the rest of the year, this means the company paid
effectively ~5.5x EBITDA for a controlling stake in a
software company growing revenues at ~26% YoY
(that has synergies with other arms of the business).
At least some of the shadiness needs to be tempered
by the price paid. Trym obviously didn’t want to shoot
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himself in the foot by having Nekkar overpay. If we
were to put a 10x sales multiple on Intellilift 2024e
revenues, we get a value of about NOK 460m which,
given Nekkar’s 51% ownership, roughly equates to
Nekkar’s market cap today. Not bad.
2. Obviously the Macgregor arbitration and debacle was
a huge fail. The CEO is gone, but the current directors
were certainly around to prevent something like this
from happening.
3. The business is carrying heavy tax losses which I
believe has stemmed from the legacy chinese JVs in
TTS which have been sold off to
Macgregor/Cargotech. Not a bad thing per-se but a
red flag that management didn’t execute so well on the
offshore / freight machinery business (which is ok
going forward since they’ve sold/discontinued this to
focus on their strengths). In addition the old CEO is
gone, and a new CEO has come in who is focussing
on the shiplift systems and getting service revenue.
Are the managers good
capital allocators?
Management have said in their reports that the “prevailing
business strategy is planned to be funded with cash flow from
Their message around risk and return is good: “Nekkar aims
to give shareholders a competitive long-term return that
reflects the risk inherent in the company’s operations. Based
on Nekkar’s capital structure and growth strategy, the
shareholders’ return should be realized mainly through
an increase in the value of their shares. However,
dividends may also be relevant in the future, if and when the
circumstances permit it. Growth through acquisitions will be
funded through a balanced mix of equity and debt.”
Selling the old loss-making expansions into cargo was a
smart move. They repaid debt / convertibles. They also
changed CEOs. Now they’re focussed on the right things and
the crown jewel, where they have a competitive advantage.
They have some interesting R&D plodding along, seems
sensible the amount of spending they’re deploying now - just
need to keep it reasonable.
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Financial health
Comp median
Current Ratio12
Debt/Equity (adjusted for buybacks)13
Total Debt/Assets14
Interest Coverage Ratio15
Altman Z-Score16
Beneish M-Score17
Preferred stock, converts, other debt
None (post Macgregor)
Don't want increasing goodwill & bad
acquisitions - awful combo
Reverse direction, see chart above under
capital allocation, mergers.
Below 1 is dangerous.
The best businesses generally don’t need debt. Should be below 50% in most cases.
A ratio greater than 1 shows that a considerable portion of the assets is funded by debt and carries higher credit risk. Below
1 suggests more of the Company’s assets are funded by equity.
Generally, a higher coverage ratio is better, although the ideal ratio may vary by industry.
Should be above 3.
An M-Score of less than -1.78 suggests that the company will not be an earnings manipulator. An M-Score of greater than
-1.78 signals that the company is likely to be a manipulator
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