Aker ASA — See All Of Norway, In One Small Company (AKER:OSE)
Today we’re going to take a look at a real anomaly of a company — or perhaps it’s a textbook example of the “conglomerate” form of corporate organization: Aker ASA (AKER:OSE).
All of Norway…
Norway boasts a diversified economy — highly dependent on the production of oil and gas to be sure, but with significant exposure to shipping, fishing and food processing as well. Aker ASA, a small industrial holding of approximately NOK 11.3 billion in market capitalization, offers exposure to almost all of these sectors.
As Aker explains in its latest interim financial report, its several businesses “are concentrated on key Norwegian industries that are international in scope … oil and gas, fisheries & biotechnology, and marine assets.” 38% of the company’s gross assets are related to oil and gas exploration, production, and services. 27% of Aker’s assets are maritime (fishing and shipping), with a further 15% invested in seafood and marine biotech.
…in one small company
An “industrial investment company,” it is important to note that Aker does business through active management of stakes it owns, in whole or in part, in other companies. (Aker itself has, after all, only 44 employees.) Aker’s holdings include such firms as:
● Det Norske (oil exploration and production)
● Aker Solutions, Kværner, Akastor, and Align (oil services)
● OceanYield and American Shipping Company (maritime)
● Havfisk and Aker BioMarine (seafood and marine biotech)
● and Fornebuporten and Akastor industrial properties (real estate).
Therefore valuing Aker is a bit tricky. On the one hand, the company doesn’t look particularly attractive under ordinary metrics. For example, according to traditional accounting, the company is not profitable (it actually lost about NOK 1.8 billion over the past 12 months). That works out to a very poor P/E ratio. Aker rarely generates positive free cash flow, with positive free cash flow greatly outweighed by capital spending in most years.
At the same time, though, Aker’s revenues are so great as to give the stock a price-to-sales ratio of just 0.15. And valued on net assets, the company boasts NOK 20.9 billion in net asset value (NAV). Thus, at its present market cap, the stock is selling for just 55% of NAV.
Valuing Aker
Does that sound like a bargain? Perhaps it is. As recently as three years ago, however (end of year 2012), Aker stated its net asset value at NOK 22.9 billion. So the past three years have seen management destroy net asset value at Aker, rather than grow it. That suggests that even in a conglomerated holding company like Aker, profitability is still important — and not to be ignored.
That being said, the potential for profiting from the unlocking of value at Aker seems self-evident. Most analysts who follow the stock are targeting a year-end share price more than 26% above where Aker trades today — and a net asset value for more than 57% above today’s share price. If they’re right, Aker shares could perform well this year, and for years thereafter, as the share price races to catch up to NAV. If they’re wrong, though … well, just take another look at how much higher Aker’s NAV was a few years ago, than it is today.
So what’s the upshot for investors? It’s not often you come across one of Benjamin Graham’s fabled opportunities to “buy a dollar for 50 cents” — or even, in this case, 55 cents. Adventurous investors might want to leap at this chance before it gets away. If Aker one day finds a way to unlock the whole value implied by its net asset value, or even a substantial portion thereof, this is a stock that could work out fabulously well for investors.
History suggests, however, that you might need to exercise a lot of patience before seeing that happen.
By Richard Smith
Disclosure: Richard Smith does not own shares of, nor is he short, any company named above. He has no present intention to take a position, either long or short, in any company named above within the next five days. Neither does he have any present financial relationship with any company named above.
Disclaimer — Risk warning
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have any present financial relationship with any company named above.
