AqualisBraemar LOC ASA

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    Jørgen Astrup


    AqualisBraemar LOC ASA

    Written: 04.01.2021

    By: Jørgen Astrup

    Disclaimer: The writer of this analysis owns shares in the company. This analysis is not financial advice. I am long AqualisBraemar LOC ASA shares. Shares have been accumulated between 3,90 and 4,10 NOK.

    This analysis is inspired by reading Phil Fisher, Joel Greenblatt, and John Templeton. “Look where no one is looking”. John Templeton loved low-priced companies that are less favorable by the market, but have a possibility for better results, and is more favorable by the market in the future. AqualisBraemar LOC ASA might be such a company.

    Who and what are AqualisBraemar:

    AqualisBraemar LOC Group ASA is a company through its subsidiaries and associates, offers marine, engineering, and adjusting consultancy services to the renewables, maritime, oil and gas, and power sectors. AqualisBraemar LOC Group has offices in all major marine and offshore energy hubs worldwide, with 67 offices across 39 locations in every continent. The business revenue comes from:

    Figure 1 Business revenue from their Q3 presentation in 2020.

    The acquisition of LOC group 

    The company is almost twice its original size after the acquisition of LOC group as of 23. November 2020. The combined group has delivered revenues of USD 139 million in the past twelve months and an EBITDA of USD 12.5 million as of 28. September 2020. AqualisBraemar stand-alone: USD 76 million in revenue and EBITDA of USD 5.7 million. This shows how big of an acquisition LOC group is for AQUA.

    My thoughts on the acquisition: 

    -Low price for the company; 4 times EBIDTA for the past twelve months from LOC group

    -Strong backlog in LOC group. Backlog expanding from AqualisBraemar standalone from 28 million USD to 83 million USD as a combined group.

    -My biggest concern for the transaction is that LOC group didn’t have a partially strong balance sheet, and I was found off AQUAs strong cash position. Their flexibility for a new acquisition in a new downturn is somewhat gone after the acquisition.

    -Cost advantage for the group of an estimated USD 3.5 million in annual cost synergies.

    -In the webcast off Q3 presentation one of the questions regarding impartiality between merging the two companies. The questions are regarded as special cases where LOC was hired on one side of the table (private companies) and AqualisBraemar was hired on the insurance side in the same case. Some problems like this will likely occur in the merger and we might see lower billing rates in the coming year.

    -The big picture -increasing the competitive advantage-. It’s difficult to mimic the global footprint of the joint group. The entry of other consultancies will have issues with matching the global reach of AqualisBraemar LOC.

    The institutional analyst-effect: 

    SpareBank 1 Markets is the only investment bank that follows this company. Like any other investment bank, the incentive to analyze a stock in the small-cap segment is normally to produce a BUY recommendation. Since the company is small and liquidity is low, some of the future multiple expansion has already come from Sparebank 1 markets change in the analysis of 30. November 2020 from 7 kr to 15 kr per share. The issue with an institutional analyst following the company is that the institutional analyst goes by a “best-case scenario”. The price is somewhat affected by the “best case analysis” and AQUA is not as interesting as if the institutional analyst was not in the picture.


    The most important factors for investing in AQUA:

    -Strong growth in the renewables energy sector for the coming years. OWC, an AqualisBraemar LOC company is a specialized and globally focused consultancy to the offshore wind industry. There is a lot of new companies starting in the renewables energy sector, with a short history and great “stories”. OWC has a long history in a relatively new segment.  OWC has the technical knowledge and practical experience which goes back into the late 1990s in offshore renewables. Since 2011 OWC has delivered assignments amounting to 68 GW of experience across Europe, Asia, and the US.

    -Showed a great ability in capital allocation by acquisition and restructuring of similar companies (Braemar June 2019 with synergy effects).

    -The company has a goal that 50 percent of the revenue in 2025 will come from the renewables energy sector and ESG-related business. (Currently 20 percent in Q3 2020) The primary focus will be growth in offshore wind and installation of floating solar panels. Let’s see how it’s going with their current goal:

    Figure 2 Renewables revenues from their Q3 presentation in 2020.

    -The speculative side of this investment is a multiple expansion from today’s level when the company is considered an ESG-friendly company with a green focus by the market. This “multiple expansion” depends on the state of the market going forward, especially the hyped market of businesses in green energy. Consider this a bonus if it happens, there is no way to know whether it will happen.

    The major risks: 

    -Low margins in their main business. Most of the earnings have come from cheap acquisition and good integration of the acquisition in the past. The same goes for their new acquisition of LOC group. There is uncertainty about the company’s ability to make the same kind of acquisitions in the future. There is a risk of the company returning to its low margins and poor operation without any further acquisitions. This from the annual report of 2019 illustrates the issue.: “Gain on bargain purchase off 11,026 thousand dollars in 2019 from the acquisition of Braemar.” Earnings with “gain on bargain purchase” with 9,037 thousand dollars in 2019 and without “gain on bargain purchase” negative earnings of 1,989 thousand dollars. This “saved” the year of 2019:

    Figure 3Clip form the annual report of 2019

    -The growth in the renewables energy part (OWC) will stagnate. Either by political changes regarding offshore wind as an industry or more competition in the field.

    -There is a risk of the transition from offshore oil to offshore wind/solar will go slower than expected.

    -The risk of low margins also in renewables by more competition in the field. High revenue from a specific segment doesn’t necessarily mean higher margins.

    -The company had a strong balance sheet with a lot of cash when buying LOC group, but not as strong anymore. There is a risk in the coming market downturn. The cash reserve is gone, and AQUA will have to pay for the loans from LOC group. AQUA still has a strong balance sheet, but it has been strongly reduced by the acquisition.

    Sources all re-read 04.01.2021:

    The acquisition of LOC Group


    AQUA Annual report 2019



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    Tommy Kristiansen


    Great analysis! I had a smaaaaaall position in Aqualis a couple of years ago, before they became AqualisBraemar. Didn’t understand the company well enough to raise the stakes, so I eventually sold out. This was before the ESG-euphoria became the ESG-euphoria, so maybe I’ll go back to my notes and take another look.

    Interestingly enough, I initially found the case with the Templeton-glasses on myself. There’s a lot satisfaction in finding interesting things when blood runs in the streets.


    Markus Enge


    Great review of the purchase.

    Having 67 offices with 140m Usd turnover, about 20m NOK in average income per office, is quite small. Guess that creates a good potential for growth. Do they say anything about growth in different countries?

    Gets a bit of that shovel to goldrush feeling (sorry cliché) lots of consultants needed in renewables, especially because it is project based and often in different jurisdictions. In the solar companies I worked for, we used a lot of consultants because 90% of the work was on a project to project basis, and then DD’s on the seller and buyer market again in sales processes after its built.

    The gain of bargain purchase often suggests that they can be a little aggressive on the accounting part, to post a gain when buying something between two independent parties always seems strange for me. But on the other hand, it provides greater depreciation going forward.

    Rødland as chairman of the board and second largest shareholder seems promising, which means to remember Spetalen so that he went to Rødland if he wants all the arguments why something was a bad investment.

    Kristian Falnes & Ulf Huse had some interesting comments regarding NWC on Twitter for Aqualis, currently, it’s quite high atm. Seems like it is trending the right way


    Jørgen Astrup


    Is not quite happy with the long credit times of Aqualisbraemar. It is almost the same as a free, interest-free loan. In fact, do not quite know if it practices differently in the 39 countries they are involved in.

    AQUA will grow through OWC and LOC renewables. OWC is headquartered in London and they have done the most projects in Europe. OWC opened three new offices so far in 2020: Japan, Korea and Poland. LOC renewables had considerable growth in the Chinese and Vietnamese markets, having won most offshore wind projects in each country during 2020, including 8 contracts in China and 5 in Vietnam. I believe that AQUA will have continued growth in Europe. but the main growth will be new projects in Asia, mainly east Asia.

    The company’s consultants are active before the bidding phase and help assess the quality of offshore wind locations. You point out Markus that in renewables it is project-based work. The main consultant hours in the AQUA are from what you would call “process-design” and coordination of the actual development- project. I do believe they will continue to grow strong because the demand for their service in renewables will be high going forward. This is my main reason for investing in AQUA, That “shovel to goldrush feeling”, at a cheap price.


    Markus Enge


    What happened in the stock today up 14% without any news?


    What happened in the stock today up 14% without any news?

    Probably just this:


    19.3.2021 10.17 · TDN Finans Delayed

    Oslo (TDN Direkt): Nordea Markets starter dekning av AqualisBraemar LOC (ABL) med en kjøpsanbefaling og kursmål 14 kroner pr aksje, ifølge en rapport fredag.

    Meglerhuset venter at ABL vil konsolidere ytterligere innen offshore konsulent- og ingeniørtjenester. Nordea venter en god avkastning og akselerering av kontantstrømmen.

    Meglerhuset kursmål innebærer en selskapsverdi (EV) mot driftsresultat på 11 ganger på 2022-estimatene.

    NS, Infront TDN Direkt, +47 21 95 60 70


    Markus Enge


    Thanks, interesting that a recommendation can take the price up that much. But guess that’s why we like small and underfollowed companies.


    Markus Enge


    Thanks, interesting that a recommendation can take the price up that much. But guess that’s why we like small and underfollowed companies.

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