James Davolos of Horizon Kinetics presented his in-depth investment thesis on Aker ASA (Norway: AKER) at Best Ideas 2020.
Aker ASA is an industrial investment holding company controlled by Kjell Inje Røkke, with investments focused in energy and maritime businesses. The shares recently traded at a ~20% discount to NAV, with ~88% of asset value in liquid, listed companies. Nearly 70% of asset value is in Aker BP, a leading independent energy exploration and production company on the Norwegian Continental Shelf. Aker BP has full-cycle breakeven costs below $35 per barrel and lifting costs falling to less than $7 per barrel, including the Johan Sverdrup (Equinor operated) field, with lifting costs nearing $2 per barrel. Existing drilling inventory has the potential to grow production organically at a CAGR of 20% through 2025, more than tripling current production.
Additional components of NAV include various shipping, engineering, and oilfield service entities that are experiencing cyclically depressed cash flow and market multiples, as well as dynamic, growth-oriented companies in industrial software and krill oil (held at book value).
The Aker companies are leaders in ESG initiatives, with Norwegian Continental Shelf production generating 60% less C02 compared to the global average, plus engineering and service companies with growing exposure to wind power and carbon capture/storage projects. Aker ASA is positioned to provide efficient (low-cost and low-carbon) energy production and services as the world transitions to lower carbon output, while having leverage to nascent renewable projects and technologies, including proprietary industrial software technologies.
Aker ASA has tangible upside of 100+% if the shares trade at 1.0x NAV and the valuation of Aker BP fully reflects non-sanctioned projects. NAV has additional upside levers from cyclical recoveries in the remaining public asset portfolio as well as market multiples for the book value investments. Finally, the Norwegian Krone exposure, ESG attributes, and dividend yield could justify a valuation premium in a different market cycle.
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About the instructor:
James Davolos is a Portfolio Manager at Horizon Kinetics LLC. He serves as Co‐Portfolio Manager to the Kinetics Internet Fund, an equity fund with approximately $150 million in assets, and he is an investment team member of the Kinetics Paradigm Fund, Kinetics Alternative Income Fund, Kinetics Global Fund, Kinetics Small Cap Opportunities Fund, and Kinetics Market Opportunities Fund, all of which are a series of Kinetics Mutual Funds, Inc. James is also directly responsible for a variety of custom and concentrated equity managed account strategies, is a Co‐Portfolio Manager on certain private funds, and is on the investment team across the core managed account strategies. He is a member of the Firm’s Investment Committee and Research Team, and is actively involved in research, valuation and portfolio allocation for many of the Firm’s high conviction investments. James joined the Firm in 2005 as a research analyst. He earned his undergraduate degree (B.B.A.) from Loyola University of Maryland in 2005, and his Master’s in Business Administrator (M.B.A.) from New York University in 2016.