Fjord1 (Buy, TP: NOK55.00) - Connecting the roads
Connecting the roads Fjord1 is a major force in the Norwegian ferry market, with a NOK30bn backlog. This attractive market is characterised by high barriers to entry, few dominant participants, and long-term government contracts providing high earning visibility. We believe Fjord1’s strong position is only set to be reinforced near-term, with tenders worth more than NOK7.5bn up for grabs. We initiate coverage with a BUY recommendation and target price of NOK55. Leading position in a robust market. Fjord1 is a leading operator in the Norwegian ferry market, controlling c50% through its fleet of 65 ferries and 32 routes. Transportation by ferries saw a stable 1.4% CAGR over 2007–2017 in PCE (passenger car equivalents), with limited cyclicality as the operators are backed by long-term government contracts (5–10 years). We expect growth to continue, but acknowledge the long-term demand risk, with construction of the E39 coastal highway potentially set to replace 41% of the total market measured by PCE by 2050. High earnings visibility. Based on Fjord1’s current order backlog of cNOK30bn, we forecast 5.6% annual revenue growth over 2017–2020. Due to a higher share of revenue from gross contracts, we expect a 2017–2020 EBITDA CAGR of c6.8%, translating into an EBITDA margin of 35–37%. Pole position for NOK7.5bn worth of tenders. We estimate that nearly 45% of contracts held by the top four ferry operators in Norway mature by 2021. Of these, we believe Fjord1 is well-placed to win six (of which it currently operates five) with start-up in 2020–2021e, representing c12% of the total market. As new tenders require significant capex, transition vessels, spare vessels in close proximity to routes, and environmentally friendly solutions, barriers to entry are high. In terms of the latter, Fjord1 is already a first-mover, with plans for 30 electric vessels by 2020. Attractive valuation; initiating with a BUY. Our SOTP indicates a fair value of NOK62/share: the ferry business represents c90% of the gross value, with c60% on firm contracts. At our target price of NOK55 Fjord1 would trade at a 2020e EV/EBITDA of c9x and a P/E of 11x, in line with ferry and cruise peers and at a slight discount to historical EV/EBITDA and P/E multiples, respectively.Fjord1 is engaged in the business of passenger boats and ferries in Norway. Co.'s core activities focus on sea transport in the form of ferry and express-boat operations, as well as catering services. Co.'s activities also include travel agencies, as well as financial investments and property management. Co. is engaged in tourism activity in the West Norwegian fjords through its ownership of The Fjords DA.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.