Nekkar

* Limited recurring revenue: The company is working to increase its share of services and spare part sales, but currently lacks a larger base of recurring revenues.
* Cyclicality risk: Syncrolift's business is subject to cyclical fluctuations in commercial shipyard financing and marine/defense budgets.
* Concentration risk: Nekkar remains heavily dependent on Syncrolift's project-driven business, lacking a diversified revenue base.
* Industry profitability: The related industrial technology sector typically does not generate high returns on invested capital (ROIC below 15%). Even if this has been the case with Syncrolift. 
* Recent performance concerns: Syncrolift's weaker performance in 2024, losing two out of three deals, raises potential concerns about competitive positioning.

* Strong market position: Syncrolift holds a 60% market share in shoplift and transfer systems, demonstrating category leadership and value capture.
* Sustainable competitive advantage: The company has cost-leading position in a market at efficient scale, with technology superiority likely to last for decades.
* Alignment with secular trends: Well-positioned to benefit from ocean-based technology trends focusing on efficiency and sustainability.
* Operational independence: Decentralized business model reduces key person risk, with subsidiaries managed independently.
* Customer-centric innovation: Close collaboration with shipping and offshore companies drives product development and adaptation to market needs.

* Lack of consistent operating margin growth over three consecutive years, potentially signaling challenges in cost management or pricing power.
* Return on Equity (ROE) below 20% for the last five years, indicating potential inefficiencies in utilizing shareholder capital.
* Absence of stable earnings growth over the last 10 years, suggesting potential volatility in the business model or market conditions.
* Free Cash Flow conversion below 80% over the past five years, which may indicate challenges in converting profits into actual cash.

* Strong profitability with a gross profit margin above 40% and an operating margin exceeding 20%, indicating pricing power and operational efficiency.
* Consistent revenue growth outperforming the industry average over the last five years, suggesting market share gains and competitive strength.
* Robust financial health with current assets 1.5 times greater than current liabilities and manageable debt levels relative to cash flow.
* Healthy earnings quality, low one-time charges, and strong operating cash flow conversion.
* Attractive dividend yield between 1 and 2.5 times the market median, well-covered by cash flows, indicating a commitment to shareholder returns.

* Short tenure of the senior management team, potentially limiting institutional knowledge and proven teamwork.
* Lack of extensive prior success in similar positions for current management, reducing confidence in their ability to drive long-term value creation.
* Limited management ownership stake in the business, potentially weakening alignment with shareholder interests.
* Absence of founder involvement in the business, which could impact corporate culture and long-term vision.
* Uncertainty regarding sustainability-related performance incentives, potentially limiting alignment with ESG goals and long-term risk mitigation.

* Strong leadership with CEO inspiring long-term vision and challenging conventional practices, focusing on sustainable ocean-based industries and value creation.
* Lean, decentralized organization promoting accountability and innovation across independently-run subsidiaries, with synergies in experience, technology, and sales.
* Consistent delivery of promises and well-defined strategy for growth and diversification, including opportunistic capital allocation and share buybacks.
* Transparent and timely investor communication, focusing on long-term business value and improving disclosure practices.
* Significant insider ownership, particularly the Skeie family's 30% stake, aligning management interests with shareholders and demonstrating long-term commitment.

<p>FiiZK is one of Nekkar&#8217;s smaller holdings previously providing closed-cage solutions, technical textiles, and software for the aquaculture industry. FiiZK has been going through a restructuring and its software business was sold in June as we described in our <a href="https://www.redeye.se/api/articles/download-file/e2f001e2-89aa-39c9-9e9c-8b457268a37d/Nekkar:%20Hidden%20Marine%20Engineering%20Champion">initiation report</a>. The company now announced a second divestment of FiiZK&#8217;s lice skirt business with a turnover of around NOK100m, representing a market share in Norway of around 80%. The news does not come as a surprise to us and we have previously speculated in our initiation report that it potentially could be sold if the price was right. Potentially the deal could be worth more than NOK100m (5x EBITDA), based on the lice skirts solid margins of around 20% (we estimate). FiiZK will now direct its focus to closed and semi-closed systems as a part of the streamlining process and we are positive to the news. Nekkar does not disclose any transaction details so it&#8217;s hard to estimate the net effects on FiiZK financials following the two divestments. As Nekkar is a minority owner, holding 39% of FiiZK, its progress is reported under financial items. We hope to see some more communication regarding the remaining parts of FiiZK going forward.</p>
<p>We will not make any adjustments to our estimates or valuation based on the information we have today.</p>
