[FREE] Endúr ASA - Norwegian small-cap: a prominent player in marine infrastructure and aquaculture solutions
Dear Investor,
I am super excited to have the opportunity today to present to you an extremely interesting company, which I believe will experience dynamic growth in the near future.
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Endúr ASA (ENDUR.OL)
Current Price: 52.60 NOK
Market Cap: 181.14 MUSD
Share#: 36.89 M
Investment Highlights
Strategic Market Position and Growth Potential: the company is a leading full-service provider in the highly fragmented Marine Infrastructure and Aquaculture Solutions markets in Scandinavia. Endúr ASA is strategically positioned to capitalize on substantial growth opportunities driven by sustainability-driven megatrends and significant public sector investments.
Solid Financial Performance and Stability. The successful refinancing of its bond loan has significantly reduced financial expenses, enhancing the company's financial stability and flexibility.
Strategic Acquisitions have not only increased the company's geographical footprint but also enhanced its service offerings, positioning Endúr to capture a larger share of the growing marine infrastructure market.
Business Overview
Background Information
Endúr ASA is a publicly traded company listed on the Oslo Stock Exchange, ticker ENDUR. Endúr ASA has undergone significant strategic transformations over the years, shifting its focus from traditional maritime and offshore energy operations to becoming a leading provider of marine infrastructure and aquaculture solutions.
Business Model
Endúr ASA operates through three primary business segments:
Marine Infrastructure
Aquaculture Solutions
Other
Each segment offers distinct products and services, catering to both public and private sector clients. The company aims to be a full-service provider within its niches, leveraging its expertise to capture substantial growth opportunities in fragmented markets.
Marine Infrastructure
The Marine Infrastructure segment is a cornerstone of Endúr ASA's operations. This segment includes companies such as BMO Entreprenør AS (link), Marcon-Gruppen i Sverige AB (link), and Repstad Anlegg AS (link), which was acquired in December 2023. These subsidiaries specialize in the construction, maintenance, and rehabilitation of critical marine infrastructure, including quays, harbors, dams, bridges, and other specialized concrete and steel projects. The segment also offers underwater services, such as diving and dredging, which are essential for maintaining and upgrading marine facilities.
Aquaculture Solutions
The Aquaculture Solutions segment focuses on providing land-based fish-farming facilities and concrete feed barges for the aquaculture industry. This segment includes companies like Artec Aqua AS and Endúr Sjøsterk AS.
Artec Aqua (link) is a leading turnkey supplier for onshore aquaculture facilities, offering solutions for post-smolt, brood stock, grow-out, and other species. The company specializes in hybrid, flow-through, and recirculating aquaculture systems (RAS), ensuring superior water quality and fish health.
Endúr Sjøsterk (link), on the other hand, focuses on the production of concrete feed barges for offshore aquaculture.
Other Segment
The Other segment includes Endúr Maritime AS (link), which provides technical ship maintenance services, including inspections, repairs, upgrades, and modifications. The segment also encompasses the holding activities of Endúr ASA, which involves group management functions, financing, mergers and acquisitions (M&A), and strategic initiatives.
The company's revenue streams are diversified across its three business segments, but also benefits from recurring revenue from maintenance and service contracts, which provide a stable cash flow.
Strategic Initiatives
Endúr ASA is aiming to achieve annualized revenue of NOK 4 billion by the end of 2025. This growth is expected to be driven both organically and through complementary M&A activities.
Additionally, Endúr ASA has initiated a share buy-back program to enhance shareholder value and utilize available liquidity for strategic purposes.
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Risks & Challenges in the Aquaculture Segment for Endúr ASA
Market Uncertainties and Regulatory Changes
Resource Rent Tax: The announcement of a resource rent tax in September 2022 created significant market uncertainties. This tax has led to delays in investment decisions by clients, affecting the order intake and revenue generation for Artec Aqua. The tax has particularly impacted the land-based fish-farming sector, causing a slowdown in new project approvals and investments.
Operational Challenges
Completion of Major Projects: The completion of significant projects like Salmon Evolution phase 1 in early 2023 has led to a substantial decrease in revenue for Artec Aqua. Post-completion, the company's resources have been primarily utilized for planning and design activities for new projects, which do not generate immediate revenue. This shift from construction to design and planning has resulted in lower overall revenue and profitability.
Order Backlog and Project Delays: The order backlog for the Aquaculture Solutions segment stood at NOK 236.9 million at the end of 2023, down from NOK 304.0 million at the end of 2022. This decrease reflects the delays and uncertainties in the market. Although there are significant projects like Geo Salmo phase 1 and Salmon Evolution phase 2 in the pipeline, the revenue from these projects is not yet reflected in the backlog, indicating potential future revenue but current financial strain.
Strategic and Market Outlook
Improving Market Conditions: Despite the current challenges, there are signs of improving market conditions. The finalization of Salmon Evolution phase 1 and the expected investment decision for phase 2, along with progress in Geo Salmo phase 1, provide a positive outlook. These projects are expected to move into construction phases, potentially boosting revenue and profitability in the coming years.
Capacity Expansion: Endúr Sjøsterk has expanded its feed-barge production capacity, which, combined with a strong backlog and favorable market conditions, provides a positive outlook for 2024. This expansion is expected to help the company meet the increasing demand for feed barges and improve its financial performance.
Industry Overview
Endúr ASA operates primarily in two key industries: Marine Infrastructure and Aquaculture Solutions.
Marine Infrastructure Industry
The Marine Infrastructure industry encompasses the construction, maintenance, and rehabilitation of critical marine facilities such as quays, harbors, dams, bridges, and other specialized concrete and steel projects. This sector is vital for supporting maritime trade, transportation, and coastal development. The industry also includes underwater services like diving, dredging, and seabed piping, which are essential for maintaining and upgrading marine facilities.
Competitive Landscape:
The Marine Infrastructure market is highly fragmented, with numerous small to medium-sized players specializing in niche services. Endúr ASA differentiates itself through its comprehensive service offerings and strong subsidiary network, including BMO Entreprenør AS, Marcon-Gruppen i Sverige AB, and Repstad Anlegg AS. These subsidiaries provide a wide range of services across Norway and Sweden, positioning Endúr as a leading full-service provider in the region.
Growth Trends:
The industry is experiencing robust growth driven by several factors:
Public Sector Investments: Significant investments in infrastructure by the public sector, particularly in Norway and Sweden, are driving demand for marine infrastructure services. The Norwegian National Transport Plan for 2025-2036 indicates substantial increases in investments in infrastructure, including maintenance and upgrades of existing facilities.
Sustainability Initiatives: There is a growing emphasis on sustainability and environmental stewardship, leading to increased demand for rehabilitation and maintenance services that promote a circular economy and reduce emissions.
Outlook:
The outlook for the Marine Infrastructure industry is highly positive. Endúr ASA's solid backlog of NOK 1.6 billion and high bid activity indicate strong market demand and project execution capabilities. The company is well-positioned to capitalize on large infrastructure projects in Sweden and the increasing maintenance gap for critical infrastructure in Norway. The focus on renewable energy projects and sustainable practices further enhances the growth prospects for the industry.
Aquaculture Solutions Industry
The Aquaculture Solutions industry involves the production of land-based fish-farming facilities and concrete feed barges for the aquaculture sector. This industry is crucial for meeting the growing global demand for fish and fish proteins, driven by increasing population and dietary shifts towards healthier protein sources.
Market Growth and Projections
The global land-based aquaculture market was valued at USD 4,336.9 million in 2022 and is projected to reach USD 16,010.24 million by 2031, exhibiting a robust CAGR of 15.7% during the forecast period. This significant growth is fueled by the increasing global demand for seafood, coupled with the need for sustainable and eco-friendly aquaculture practices.
Technological Advancements
Technological innovations are at the forefront of the land-based fish farming industry's growth. Emerging technologies such as Recirculating Aquaculture Systems (RAS), machine learning, IoT, and advanced monitoring systems are revolutionizing the industry.
Environmental and Economic Benefits
Land-based aquaculture offers several environmental and economic advantages over traditional open-water farming. By raising fish in controlled environments, land-based systems reduce the use of antibiotics and chemicals, minimize the risk of disease outbreaks, and prevent pollution of surrounding ecosystems. Additionally, these systems can produce fish closer to consumer markets, reducing transportation costs and the associated carbon footprint.
Market Dynamics and Challenges
The land-based fish farming industry is navigating through various challenges, including high capital expenditure, technological hurdles, and securing necessary financing. The industry has seen a shift from an era of easy funding to a climate marked by higher interest rates and risk premiums, leading to greater selectivity among investors. Despite these challenges, companies like Salmon Evolution (link) have shown promising biological results and are on track to increase production significantly.
Regional Insights
The Asia Pacific region holds the largest market share in the global fish farming market, driven by extensive aquaculture expertise, abundant resources, and a large population base. Countries like India are expected to see rapid growth due to their vast water resources and transition from capture-based to culture-based fishing.
Future Prospects
The future of land-based fish farming looks bright, with continued advancements in technology and increasing demand for sustainable seafood. Companies are expected to expand their operations and adopt innovative solutions to overcome current challenges. The industry's growth is also supported by rising health awareness, increasing per capita income, and urbanization, which drive the demand for high-quality fish protein.
Customer Groups
Marine Infrastructure Segment:
Endúr ASA's Marine Infrastructure segment serves a diverse range of customers, primarily in the public sector. The key customer groups include:
Public Sector Clients: This includes government bodies and municipalities responsible for maintaining and upgrading critical infrastructure such as quays, harbors, dams, bridges, and other specialized concrete and steel projects. The Norwegian National Transport Plan for 2025-2036 indicates substantial increases in investments in infrastructure, providing a stable and recurring revenue stream for Endúr ASA.
Private Sector Clients: These include private companies involved in maritime trade, transportation, and renewable energy projects. The company's subsidiaries, such as BMO Entreprenør AS, Marcon-Gruppen i Sverige AB, and Repstad Anlegg AS, cater to these clients by offering comprehensive services in marine construction, underwater services, and renewable energy projects.
Aquaculture Solutions Segment:
The Aquaculture Solutions segment primarily serves clients in the aquaculture industry, focusing on land-based fish-farming facilities and concrete feed barges. The key customer groups include:
Aquaculture Companies: These are companies involved in fish farming, particularly those focusing on sustainable and environmentally friendly practices. Endúr ASA, through its subsidiaries Artec Aqua AS and Endúr Sjøsterk AS, provides turnkey solutions for onshore aquaculture facilities, including hybrid, flow-through, and recirculating aquaculture systems (RAS). The company also produces concrete feed barges for offshore aquaculture.
Public Sector and Research Institutions: These clients include government bodies and research institutions involved in developing and promoting sustainable aquaculture practices.
Recent News and Events
Endúr ASA has experienced several recent developments that have significantly impacted its financial performance.
1. Strategic Acquisitions
Repstad Anlegg AS (link) Acquisition: In December 2023, Endúr ASA acquired Repstad Anlegg AS, a Norwegian infrastructure contractor specializing in marine services, quays, harbors, and groundworks. This acquisition, valued at approximately NOK 298.3 million, has expanded Endúr's footprint and service capabilities in the Marine Infrastructure segment. The integration of Repstad Anlegg AS is expected to generate revenue synergies and enhance the company's market position in Norway and Sweden.
Svenska Tungdykargruppen AB (STDG) (link) Acquisition: In September 2023, Endúr ASA, through its subsidiary Marcon-Gruppen i Sverige AB, acquired STDG, a marine infrastructure company specializing in diving and dredging operations. This acquisition aims to meet increasing demand and secure additional capacities for Marcon's existing services, thereby strengthening Endúr's market presence in Sweden.
2. Market Conditions and Regulatory Changes
Resource Rent Tax: The announcement of a resource rent tax in September 2022 created significant market uncertainties, particularly affecting the Aquaculture Solutions segment. This tax led to delays in investment decisions by clients, impacting order intake and revenue generation. However, the market has shown signs of stabilization, with positive progress in major projects like Salmon Evolution phase 2 and Geo Salmo phase 1.
Inflation and Interest Rates: Higher inflation and increased interest rates have further compounded challenges in the aquaculture market, leading to increased costs and delayed investment decisions. These economic factors have affected the overall financial performance of the company.
3. Operational Developments
Completion of Major Projects: The completion of significant projects, such as Salmon Evolution phase 1, in early 2023, led to a substantial decrease in revenue for Artec Aqua. The shift from construction to design and planning activities has resulted in lower overall revenue and profitability for the Aquaculture Solutions segment.
Increased Feed-Barge Production Capacity: Endúr Sjøsterk has expanded its feed-barge production capacity, which, combined with favorable market conditions, has led to improved financial performance. The company recorded strong revenue and EBITDA growth in Q1 2024, reflecting increased demand for feed barges.
4. Financial Initiatives
Share Buy-Back Program: Endúr ASA announced and initiated a share buy-back program in March 2024, covering purchases of up to 1,629,741 shares, with a maximum amount paid under the program of NOK 50 million. This initiative aims to enhance shareholder value and utilize available liquidity for strategic purposes. The program is planned to be finalized by February 28, 2026.
Refinancing of Bond Loan: In March 2023, Endúr ASA refinanced its bond loan, which had a net outstanding principal of NOK 810 million, with a new bank facility of approximately NOK 700 million. This refinancing has substantially reduced future interest expenses, ensuring a more flexible and adaptive financing structure and strengthening the company's financial stability.
The Norwegian Defence Framework Contract “Avlastningsavtalen"
The extension of the Norwegian Defence framework contract, known as "Avlastningsavtalen," has had a notable impact on Endúr ASA's revenue, particularly within its Marine Infrastructure and Other segments.
The "Avlastningsavtalen" is a framework contract with the Norwegian Defence for the maintenance of the naval fleet. This contract involves periodic routines and maintenance services, which are critical for ensuring the operational readiness and longevity of military vessels.
Strategic Importance
The extension of the "Avlastningsavtalen" is strategically important for Endúr ASA for several reasons:
Stable Revenue Stream: The contract provides a stable and recurring revenue stream, which is less susceptible to market fluctuations compared to other project-based revenues.
Public Sector Client: Working with the Norwegian Defence enhances Endúr ASA's credibility and reliability as a service provider, potentially opening doors to other public sector contracts.
Operational Efficiency: The periodic routines and maintenance services under the contract help optimize the utilization of Endúr Maritime's facilities and workforce, contributing to operational efficiency.
Future Outlook
The extension of the "Avlastningsavtalen" until March 2025 ensures continued revenue from this contract in the near term. The company is also involved in several material tenders expected to be concluded in H1 2024, which could further bolster its revenue and order backlog. The ongoing demand for ship maintenance from both public and private clients indicates a positive outlook for Endúr Maritime and the broader Marine Infrastructure segment.
Revenue Growth Catalysts for Endúr ASA to Reach NOK 4 Billion Revenue Target by 2025
1. Strategic Acquisitions and Market Expansion
Endúr ASA has been actively pursuing strategic acquisitions to expand its market reach and service capabilities. Notable acquisitions include:
Repstad Anlegg AS
Svenska Tungdykargruppen AB (STDG)
These acquisitions not only expand Endúr's geographical footprint but also enhance its service offerings, positioning the company to capture a larger share of the growing marine infrastructure market in Scandinavia.
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2. New Project Developments in Aquaculture Solutions
The Aquaculture Solutions segment is poised for significant growth, driven by new project developments and increasing demand for sustainable fish farming solutions. Key projects include:
Salmon Evolution Phase 2: Following the successful completion of phase 1, phase 2 of the Salmon Evolution project is expected to move into the construction phase, driving substantial revenue growth. This project involves the development of advanced land-based fish farming facilities, leveraging Endúr's expertise in recirculating aquaculture systems (RAS).
Geo Salmo Phase 1: Another major project in the pipeline, Geo Salmo phase 1, is expected to contribute significantly to revenue as it progresses into the construction phase. This project underscores Endúr's capabilities in delivering turnkey solutions for onshore aquaculture facilities.
The company's strong backlog, which does not yet reflect the expected revenue from these projects, indicates a positive outlook for revenue growth in the Aquaculture Solutions segment.
A few days ago, Artec Aqua made it clear on LinkedIn that the materialization of large contracts is very close:
We have built land-based fish farming facilities along the entire Norwegian coast and are about to start several large projects – in Norway and internationally. Now we need more people on the team with construction and engineering expertise, who will get to participate in very complex and unique projects.
We are looking for the following:
Project Design Manager (PGL)
Procurement Manager
Construction Manager
Process Design Manager
Process Design Engineer
Seize the opportunity, and feel free to inform someone you know about these positions!
3. Expansion of Feed Barge Production Capacity
Endúr Sjøsterk, a subsidiary under the Aquaculture Solutions segment, has expanded its feed barge production capacity. This expansion, combined with favorable market conditions, positions the company to meet the increasing demand for feed barges in the aquaculture industry. The increased construction capacity is expected to drive revenue growth and improve operational efficiency.
4. Public Sector Investments and Infrastructure Projects
The Marine Infrastructure segment is set to benefit from substantial public sector investments in infrastructure. The Norwegian National Transport Plan for 2025-2036 indicates significant increases in investments in infrastructure, including maintenance and upgrades of existing facilities. Key areas of investment include:
Roads and Railways: Increased funding for the maintenance and upgrade of roads and railways is expected to drive demand for Endúr's services in these areas.
Coastal Infrastructure: Investments in fishing terminals and port upgrades along the Norwegian coast provide additional growth opportunities for Endúr's marine infrastructure services.
These public sector investments provide a stable and recurring revenue stream, supporting long-term growth in the Marine Infrastructure segment.
5. Technological Innovations and Sustainability Initiatives
Endúr ASA's focus on technological innovations and sustainability aligns with global trends and regulatory requirements, making it an attractive partner for environmentally conscious clients. Key initiatives include:
Advanced Aquaculture Systems: The company's expertise in hybrid, flow-through, and RAS systems ensures superior water quality and fish health, positioning Endúr as a leader in sustainable aquaculture solutions.
Renewable Energy Projects: Endúr's involvement in marine construction activities related to renewable energy projects aligns with global sustainability trends and increases its market appeal.
6. Share Buy-Back Program and Financial Flexibility
Endúr ASA has initiated a share buy-back program, covering purchases of up to 1,629,741 shares, with a maximum amount paid under the program of NOK 50 million. This initiative aims to enhance shareholder value and utilize available liquidity for strategic purposes.
Shareholders
Endúr ASA's shareholder structure is characterized by a mix of institutional investors, private equity firms, and individual shareholders. As of the latest report, the major shareholders include:
The top 20 shareholders collectively hold 77.21% of the shares
Insiders have been purchasing shares on the open market. They also participated in strategic private placements during the restructuring.
Financials
Income Statement
Revenue:
Endúr ASA reported total revenue of NOK 575.8 million for Q1 2024, reflecting a 19% increase compared to NOK 484.7 million in Q1 2023. This growth was driven by sustained performance in the Marine Infrastructure segment and improved results in the Aquaculture Solutions segment. The revenue increase is notable given the completion of the Salmon Evolution phase 1 project in Q1 2023, which had previously contributed significantly to revenue.
Profitability:
The company's adjusted EBITDA for Q1 2024 was NOK 67.0 million, up from NOK 51.1 million in Q1 2023, representing a 31% increase. The adjusted EBITDA margin improved to 11.6% from 10.5% in the same period last year. This improvement in profitability is attributed to higher margins in both the Marine Infrastructure and Aquaculture Solutions segments. The operating profit (EBIT) for Q1 2024 was NOK 12.3 million, compared to NOK 14.4 million in Q1 2023. The decrease in EBIT is primarily due to higher depreciation and amortization expenses.
Margins:
Gross Margin: The cost of sales for Q1 2024 was NOK 259.4 million, down from NOK 282.1 million in Q1 2023.
EBITDA Margin: The adjusted EBITDA margin for Q1 2024 was 11.6%, up from 10.5% in Q1 2023.
Net Profit Margin: The net loss for Q1 2024 was NOK 6.3 million, a significant improvement from the net loss of NOK 49.4 million in Q1 2023. This improvement is due to lower financial expenses following the refinancing of the company's bond loan.
Balance Sheet
Liabilities:
Total liabilities as of March 31, 2024, were NOK 1,780.1 million, up from NOK 1,746.9 million at the end of 2023. Key components include:
Loans and Borrowings: Non-current loans and borrowings decreased to NOK 718.0 million from NOK 754.9 million at the end of 2023, reflecting repayments of debt.
Lease Liabilities: Non-current lease liabilities increased to NOK 204.0 million from NOK 152.7 million at the end of 2023, due to new lease agreements.
Trade and Other Payables: These liabilities decreased to NOK 246.1 million from NOK 262.0 million at the end of 2023, indicating improved payment cycles and working capital management.
Equity:
Total equity as of March 31, 2024, was NOK 1,186.7 million, slightly down from NOK 1,191.7 million at the end of 2023. The equity ratio stood at 40.0%.
Cash Flow Statement
Operating Activities:
Endúr ASA generated NOK 70.1 million in cash flow from operating activities in Q1 2024, a significant improvement from the negative cash flow of NOK 51.8 million in Q1 2023. This positive cash flow is attributed to strong cash conversion and a slight reduction in net working capital tie-up.
Investing Activities:
The company reported a net cash outflow of NOK 23.3 million from investing activities in Q1 2024, compared to NOK 9.3 million in Q1 2023. This increase in cash outflow is primarily due to higher investments in property, plant, and equipment, as well as investments in shares.
Financing Activities:
Net cash outflow from financing activities was NOK 72.9 million in Q1 2024, compared to NOK 214.3 million in Q1 2023. The decrease in cash outflow is due to lower repayments of loans and borrowings following the refinancing of the company's bond loan in 2023.
Liquidity:
As of March 31, 2024, Endúr ASA had cash and cash equivalents of NOK 79.4 million, down from NOK 103.2 million at the end of 2023. The company also has a non-utilized overdraft facility of NOK 150 million, providing total available liquidity of NOK 229 million. This strong liquidity position supports the company's ongoing operations and strategic initiatives.
Pareto Securities, has analytical coverage on Endur as of March 6, 2024, with a target price of 65 NOK. I think the situation looks even better a few months later.
Assuming the company achieves 4 billion NOK in revenue in 2025, with a decrease in debt and an increase in cash generation capability, one could expect an EBITDA margin of 11-13%. This would imply, imo, a rather conservative valuation today of 5.5x-6.5x EBITDA.
Conclusion
Endúr ASA, a prominent player in marine infrastructure and aquaculture solutions, has showcased robust financial performance and strategic growth initiatives. I believe the company has established a clear path to achieve its ambitious revenue targets.
The next stage for Endur will be the discovery process by the market.