Aqualis AQUA NO
November 06, 2014 - 11:56am EST by
2014 2015
Price: 8.00 EPS 0 0
Shares Out. (in M): 44 P/E 0 0
Market Cap (in $M): 51 P/FCF 0 0
Net Debt (in $M): -21 EBIT 0 0
TEV (in $M): 30 TEV/EBIT 0 0

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  • Professional Services
  • Engineering Services
  • Illiquid
  • Europe
  • Spin-Off
  • Insider Buying


For those of you able to invest in illiquid Norwegian spinoffs (so for most of you, feel free to stop reading now), I think Aqualis presents an interesting risk-reward. Aqualis (AQUA) provides engineering services to the offshore energy industry that was created through the merger of 3 separate companies in late 2013/early 2014. After its former parent merged with pharma company Weifa, AQUA was spun out to shareholders in August 2014.    

While the stock appears fairly valued on 2014 numbers, those results do not reflect the significant ongoing growth in Aqualis's employee base as Q3 14 run-rate revenues are over 30% higher than 2014 estimates. With downside to ~NOK 6 and upside to NOK 18+, AQUA provides an attractive risk-reward at NOK 8.

Capitalization and Valuation **** Note USD functional currency despite NOK share price****

AQUA has 43.7mln diluted shares for an NOK 350mln mkt cap at NOK 8 or USD 51mln. The company has USD 21mln of cash for an EV of US 30mln (NOK 203mln.). 2014 revenues should be ~31mln (EV/S=1.1x)


AQUA has quickly gained a strong foothold in the industry, more than doubling its employee count this year and signing contracts with blue chip customers including Saudi Aramco, Petrobras, Statoil, Shell, Chevron, Seadrill, Keppel etc. Conversations with employees at competitors have suggested that AQUA is already very well known in the industry and has been aggressively adding employees and customers.

AQUA currently has 166 employees, well below their near-term goal of 300-400. Given that each employee generates ~$250k of revenue, 350 employees would generate ~$84mln of annualized revenues and 13mln of EBIT at 15% margins (20% target and peers high teens). At 8x EBIT, that would justify an NOK 18 share price. It should be noted that management thinks that 500-1000 employees and higher is possible.  

Insiders have made purchases of stock at current and higher prices and have taken stock in acquisition payments with multi-year lockups that justify an NOK 10+ price. Management owns over 20% of the stock (broadly held). The company also expected the stock to trade at NOK 10 in its valuation when it was spun-off.

The company is controlled by Ferncliff, an investment company controlled by Norwegian billionaire investor Oystein Stray Spetalen. This is important because Ferncliff and Mr. Spetalen have very relevant experience in this space. In 2006, they acquired AQUA competitor Noble Denton. After building it up for several years, they sold it to GL in 2009 which they built up under a similar strategy and sold to GL in 2009 after enjoyed a ~350% return.


Currently, AQUA has 166 employees who historically have generated >$20k per month of revenue (Q3 2014 $23k per month of revenue). Thus at current levels, AQUA should generate ~$40mln of annualized revenue. At 0.5x revs (peer transaction >1x), that would justify an NOK 6.5 share price. It should be noted that the cost of the acquisitions also justify a share price of NOK 6 and the acquisitions were made when the company's involved only had 111 employees vs. 166 currently as well as a much smaller backlog of business.

AQUA also has over NOK 3 per share in net cash.

Happy to discuss further details if there is any interest in the comment section.

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Continued revenue growth

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