Equity Deep Dive #1: Odfjell Technology

A Norwegian Offshore Oil Company

Hello everyone and welcome to the new subscribers! Thank you for joining and I hope this posts teaches or widens your horizons in some way. I have been working on this write on and off for a few months so some exact valuations will have changed slightly. However, I still stand by analysis. As this is my first equity write up ANY and all feedback is welcome. I also apologies for the very slow speed at which new posts are being written. Personal issues got in the way but I hope to be back to posting on a more regular schedule. Stay until the under of the post to help decide the next posts!

I. Executive Summary

Odfjell Technology or (OTL) is a company a Norwegian oil drilling business. OTL is listed primarily on the Oslo Stock Exchange. Odfjell Technology or OTL, operates three main revenue segments. These include well services, projects & engineering, and operations. More on these segments in the rest of this article. OTL mostly operates in Norway with sizable operations in both the United Kingdom along with the rest of Europe. It is my view that Odfjell Technology is a very promising company in a solid industry with great potential returns. With that being said OTL is not a free lunch, with an company that engages in fossil fuel industry political risks are always something to keep in mind. Especially in countries like Denmark where Odfjell Technology happens to be headquartered. However, the world runs on fossil fuels so as long as there is demand supply will follow. Celeritas Capital is initiating a buy for Odfjell Technology. Our one year price target is 85 DKK. Celeritas Capital is long common shares of OTL for full transparency.

Figure 1 via FinChat.io, OTL’s entire equity performance

II. Company Overview

As eluted to in the executive summary OTL has three primary business segments. In order of revenue creation (highest to lowest) the three segments are operations, well services, and projects & engineering. (Figure 2)

Figure 2 via Odfjell Technology Q4 2023 Report

Business Description:

The core business activities that OTL is involved include well services, operations, and projects & engineering as mentioned in the executive summary. OTL has operations both onshore and offshore, with the majority being offshore. OTL makes the majority of its revenue in Norway & Untied Kingdom along with strong revenue in Europe and Asia.

Figure 3 via Tradingview

What exactly are Well services?

To quote Odfjell Technology “(Our) Well Services segment provides a wide range of services to the drilling industry, including casing and tubular running services, drilling tool rental, fishing services and well bore cleaning. The clients and consumers for these service areas are oil and gas companies involved in drilling operations, both onshore and offshore.”¹

Casing and tubular running services are key in the production of oil and gas well sites. They generally involve two tasks, Installing casing This creates a strong, sealed wellbore by lining it with multiple pipe sections. This casing isolates the well from surrounding rock and fluids, protecting it and allowing controlled access to specific zones for oil and gas extraction. Installing production string this is a smaller pipe placed inside the casing that transports extracted oil and gas to the surface.

Efficient casing and tubular running services are crucial for cost-effective well construction and oil and gas production. This gives OTL an important leg up over as companies along with Governments are going to continue put an increase emphasis on improving safety standards as a preventive measure against pollution. Along with the increased of depth offshore drilling projects which will require greater tubular services that must be provided.

Projects and Engineering + Operations

What are some Projects and Engineering that Odfjell Technology has currently in there portfolio? The figured included below also shows the operations currently generating income. (Figure 4)

Figure 4 via Odfjell Technology Q4 2023 Presentation

III. Industry Analysis

To start our Industry analysis I want to first share my projection for the price of oil by the end of this year. This is mostly based on technical analysis along with a macro belief I have. I believe that oil will be an important commodity for the foreseeable future even in places with progressive polices such as Europe.

The oil and gas market has several strong industry wide drivers. These include but are not limited to population growth especially in emerging markets. These markets are great growth opportunities, due to the fact that they must take the step from an agricultural based society to one focused on manufacturing then to a service based economy like the developed markets. This manufacturing stage is extremely energy intensive which is where the growth opportunity for the gas and oil sector comes in. Another industry driver that especially helps out OTL is the current war in Ukraine and Europe’s goal for reducing its reliance on Russia for oil and gas. As shown in Figure 5 OTL also has solid backlog.

Figure 5 via Odfjell Technology Q4 2023 Presentation

IV. Financial Analysis

First an important note: all numbers in this section are in Norwegian Krone unless otherwise noted.

Let us start with some basic valuation metrics that are current at time of writing.

• Market Cap NOK 2,399.4M

• Valuation (TTM)

  • P/E

    6.81

  • P/B

    2.17

  • EV/Sales

    0.6

Now time for the financials of OTL first lets look at the historical EV/EBITDA. (Figure 6)

Figure 6 via FinChat.io

As shown below in Figure 6 OTL had a significant increase in their free cash flow which is a good sign in my view. EBITDA also grew in financial year 2023. (Figure 7)

Figure 7 via Odfjell Technology Q4 2023 Presentation

Now a look at the impressive net income with a CAGR of nearly 16%! (Figure 8)

Figure 8 via FinChat.io

Next a look at Odfjell Technology debt situation currently OTL has enough assets to cover the companies debt. (Figure 8) This is of course a good thing, however I would like to see some debt payments in the next few quarters.

Figure 9 via FinChat.io

Next, we will compare OTL to the rest of the industry by comparing the companies growth multiples. In our view OTL is the clear winner here with ABL a much smaller firm without the resources of OTL. The projected CAGR for the next 3 years for OTL is at nearly 22% growth. Along with the companies strong pipeline of future and current projects we believe OTL is in a strong place financially. (Figure 10)

Figure 10 via Finchat.io

V. Analyst Price projections

Figure 11 via Finchat.io

Figure 12 via Finchat.io

VI. Conclusion

Odfjell Technology is a promising Norwegian oil and gas company with a large upside in our view. It is also rather cheap when compared to the S&P 500 P/E which is around 17x. While OTL is currently sitting at a P/E of 6.81 and a 3Y CAGR of 21.91%. Personally, I will be adding more exposure to OTL. I hope this article taught you something or at the very least brought a new company to your attention! Also thank you to Finchat.io they did not sponsor this post or anything like that I just think it is a great tool for equity investors.

Polls:

To explain this poll a bit since Substack limits how long each choice should be. The general financial primer will be aimed at people who understand the basics of finance and what a slightly deep look into how the system work. And the final option is back to my “regularly” scheduled posts like Fixed Income Friday and the Week ahead. Personally I feel like there is already a lot good content if you want to review the previous trading or get ready for the next trading week. Shoutout the

Capital Flows

and

Paper Alfa

for both doing a great job with that.

1. From OTL Prospectus linked in the sources, quote can be found in section 7.3 on page 49.

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DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.