Philly Shipyard

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    Philly Shipyard is a shipyard in Philadelphia in US. They have buiilt around 50% of the ships under the Jones Act agreement. The Jones Act is an agreement that every ship that carries goods between US Ports has to be constructed in the US, owned by us citizens and sail under the flag of US. The last year have been rough for Philly Shipyard and have had only small contracts last few years. In this time Philly has been in government sponsored studies for military training ships, or NMSVs. In April 2020 Philly got awarded a contract for 2 of these and options for 3 more. The 5 ships has a cost of approximately 1,5 billion us dollar. And as of Q3 20 they had a backlog of 608 million us dollar. Philly shipyard is in a important region politically in US and both the democrats and republicans need them to be on there side. That means that it is highly possible for Philly to get the options on the last 3 NMSVs. If Philly build every boat they have full backlog until 2025.NMSV number 3 and 4 are soon to be ordered from the Maritime administration. On an other side it is highly possible that the Jones Act will apply to offshore wind and there are not many shipyards in US that apply to Jones Act. So even if the orders for NMSV go to another shipyard Philly has a lot of potential inside the offshore wind.

    The owner structure in Philly is an important thing. Aker Capital is the biggest owner with approximately 60%. The Aker system has a lot of conections with big companies. Second largest owner is a fund called Apollo assets. They own approximately 20% and started to sell down some shares before 2021 started. it seems that they have stopped selling and has not sold a share in January. This means that is a stable ownership structure with the Aker system on top. Aker has invested a lot in becoming a large offshore wind player. Aker owns a big stake in Amercian shipping company wich is  a big player in the Jones Act market. So it can be possible that they order offshore wind ships from Philly and use them with Aker Offshore wind.

    Back to the most possible outcome which is that Philly get the options. Philly has a marketcap of 82 musd and a netcash postion of 85 musd with backlog much higher than that. If they calculate the same numbers as Q3 they expect a EBITDA margin of 6,6%. If we use the orderbacklog with no options and use 6,6% EBITDA margin we get a EBITDA of 40musd. The second ship is going to be finished around 2022 and that means a EBITDA of 20 musd a year. And this is with orders only to 2022. If they get the 3 next NMSV too they have a EBITDA of approximately 20musd per yer to 2025. And the offshore wind market makes the outlook seem much better.

    If we want to value this we could look at backlog and margins. Right now it is valued under net cash and 0 margin on the NMSV. If we use a margin of 6% Philly could be worth as much as 4x times the amount as now. One more thing that is nice with Philly shipyardis that there are no analyst coverage and is under the radar for many institutional investors. The next big thing can be the awarding of the next two ships which make it a much larger backlog.

    So all in all Philly Shipyard is a undervalued company in a sector that can be very important in the future for the offshore wind market in the US.

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