Description

Summary

This is a reactive write up based on a current situation in a company I have previously written up. BEWi announced this week the closing of a key acquisition which will fundamentally change the competitive dynamics in one of its key markets. In addition, there has been speculation in the media that one of its shareholders (5% owner) is a forced seller, which has put pressure on the share price given its low liquidity. With the share price down 45% YTD despite excellent operational results, we believe the current setup is a great time to get onboard with an “owner operator” who has shown tremendous ability to create shareholder value. The stock is currently trading at 9x normalized EBIT.

Background

We wrote up BEWi on VIC back in October 2020, but after great share price performance we recommended getting out of the stock in October 2021. BEWi was one of the best performing stocks in Norway in 2021, appreciating 220%. Despite excellent operating results since then, the shares are down 45% YTD. We believe the combination of 1) excellent operating results, 2) closure of a new transformative acquisition, and 3) the forced seller which has driven down the share price, makes a perfect setup to get on board with an “owner operator” who has shown great ability to generate shareholder value.

What has happened since

Jackon acquisition

In October 2020, BEWi announced the acquisition of Jackon Holding AS for ~3500 NOK m, partly settled in cash and partly in new shares. Jackon has been owned by two families in Norway and has been a key competitor for BEWi in the Nordic markets. The consolidated company will now have a much stronger position, especially in the Nordic insulation market where BEWi has had 50% of its revenue within the insulation segment but due to poor market dynamics has barely made a profit. We believe the consolidation of this market now down to a 3 player market will dramatically change the dynamics, and will enable the players to take back profit from the retailers.

The Akselsen family took its proceeds from the deal in new BEWi shares and will now go on the board of BEWi, further enhancing the industry knowledge on the board. We view this as a positive step for BEWi ASA.

In addition, Jackon has an RAW EPS facility in Germany with 60-80k tons capacity which will now give BEWi a third plant to optimize logistics. We note that when BEWi acquired Synbra back in 2018 it had an RAW capacity of 60k tons, but this facility now produces 90k tons after the engineers at BEWi has made some minor investments and adjustments to the facility. We would not be surprised if the same happens with the Jackon plant in Germany.

BEWi has announced that synergies from the deal is expected to be around 2-4% of revenues, which is inline with its previous communication for regular deals. Given the strategic fit, size of the company, and the points mentioned above we believe the synergies are materially higher.

The deal was also financed with the sale-leaseback of the properties within Jackon, which in first trance will provide 1000 NOK m of financing. This was done right before the interest rates started rising at 6.3% yield, meaning BEWi locked in cheap financing of this acquisition. It is also worth noting that BEWi tapped its outstanding bond in great credit markets above par to finance this acquisition.

Operating results

After Q2 2021, BEWi had reported LTM EBITDA of 83m EUR and recently guided during its capital markets day that the 5-year ambition was to grow this to 170m EUR, roughly 1/3 from operations and the rest from acquisitions. Key drivers are 5% volume growth and increasing RoCE from 15 to 20% due to scale. Per Q2 2022, BEWi has organically grown LTM EBITDA to 135m EUR and announced the acquisition of Jackon with an EBITDA of 45m, meaning 190m EUR pro-forma already after 1 year.

A key driver in these results has been strong demand for insulation as COVID has fueled a renovation wave, but also a strong underlying demand for reinsulating houses in Europe to reduce energy consumption. More on this below.

It is worth noting that in the LTM figures, RAW accounts for 70m EUR which only a few years ago made 15m EUR. This super profit has come from a very tight EPS market following the closure of a 100k ton plant by Synthos in France, and very high demand as mentioned above. With lower activity in Europe for next year we do not expect this super profit to sustain at current levels, but we note the strong underlying demand growth for insulation can lead to super profits again in this segment over the next few years as there is limited ability to add capacity to this market.

Forced seller

M2 asset management is an investment company based in Sweden that has primarily invested in real estate. The structure is highly leveraged and built up around tiered financing. M2 also holds a 5% stake in BEWi and it has been rumored that it has received margin calls on this as it has most of its other investments in Swedish real estate. A market that is down significantly this year. This has put pressure on BEWi’s share price as people are waiting for this position to clear. However, we have reason to believe the situation is now cleared and that M2 asset management is no longer a forced seller.

Current valuation and expectations

At year end we expect BEWi to have 350m in NIBD, combined with a share price of 45 NOK this means an EV of 1.2 EUR bn. Pro-forma EBITDA with synergies are expected to be > 200m EUR, but this should be normalized due to the RAW situation down with 40m EUR. When margins in RAW normalize, we expect margins in its insulation and packaging segments to increase by 15m EUR due to lower input costs, leaving net pro-forma EBITDA at 175m EUR. With 40m D&A, this means the company currently trades at 9x EBIT (1.2bn / 175-40) which we believe is cheap given its position and track record. 

Catalyst

Great results H2 2022

New acquisitions