Company Overview
NORBIT ASA (NORBT) produces tailored technology for selected applications in niche markets. NORBT is structured into three business segments: Oceans, Connectivity, and Product Innovation & Realization (PIR). The Oceans division delivers customized technology solutions to global maritime markets. The Connectivity section provides bespoke wireless solutions for identification, monitoring, and tracking. The PIR segment offers R&D services and products, and contract manufacturing to key customers.
NORBT is headquartered in Trondheim and has around 450 employees. The company has R&D and production facilities in Norway and Hungary and has a worldwide sales and distribution platform. Its market capitalization hovers just above 3B NOK.
Explosive growth
Trondheim boasts a rich history of fostering technology companies, with NORBT being the latest addition to this legacy. Noteworthy precedents, such as Autronica (going way back), underscore the city's longstanding tradition of nurturing innovative ventures. This tradition thrives due to Trondheim's robust foundation for cultivating successful engineering and technology enterprises, facilitated by its close association with the Norwegian University of Science and Technology (NTNU).
Norbit has demonstrated a consistent trend of remarkable growth, exemplified in the accompanying table. In the last quarterly report, the company’s management announced a positive profit warning, indicating sales of higher than 1,5B NOK and an EBITDA margin above 25 % in 2023.
NORBT's stock price indicates a valuation of 2 times its sales and a price-to-earnings (P/E) ratio of approximately 18. Considering the company's substantial top-line growth as illustrated above, this valuation appears remarkably cheap.
The problem posed
NORBT is a micro-cap that caters to niche markets and grows its revenue like a weed. The problem with analyzing this company can in my view be summarized as follows:
Market Size Uncertainty: While addressing demand in niche markets can yield success, the real challenge lies in quantifying the dimensions of these niches. The critical question here is: How extensive is the runway for continued growth?
Technology Appeal: Assessing the attractiveness of NORBT's proprietary technology in the market is pivotal. Understanding the attractiveness of this technology in the competitive landscape is crucial for strategic analysis.
Corporate Agility and Innovation: The degree of adaptability and innovation within the company, both at the managerial and organizational levels, is a significant factor. How nimble and innovative are NORBT's management and overall workforce? This dynamic plays a pivotal role in shaping the company's trajectory.
Niches, technology, and growth projections
We have to go through the various divisions of the company to assess the strength of all the unique products.
Oceans
In 2022, the sales in the Ocean division were M443 NOK, representing 37 % of total sales.
Sonars are the big ticket item in this segment The sonar solutions are based on highly integrated and compact sonars with light detection and ranging (LIDAR), and a global positioning system (GPS) for surface and subsea imaging and mapping. The sonar business has two use cases: Subsea and security.
In the subsea domain, NORBT’s multibeam sonars (Winghead) are used for subsurface navigation and seabed mapping for inspection. In the security realm, NORBT’s surveillance sonars (Guardpoint) can be used for obstacle avoidance, mine countermeasures, and threat detection from divers or other moving objects close to critical infrastructure.
In addition to sonars, this department provides high-quality cables, services (led lightning, underwater cameras, and sensors) to the fish farming industry, and sensors mainly used for environmental monitoring, such as oil spills, vessel collision warning systems, and observations of wildlife.
Promising growth projections characterize the Ocean segment, emphasizing the growing significance of monitoring physical conditions for businesses striving to comply with ESG demands. Furthermore, in the global market, escalating geopolitical tensions, exemplified by sabotages in Baltic Sea gas installations, underscore the imperative of safeguarding sea installations. NORBT's sensors have also significant military applications, particularly in their ability to detect mobile threats at sea.
In conclusion, this niche presents a robust opportunity for Norbit, marked by a clear and objective demand for the company's specialized technology. Notably, the segment boasts affluent clientele, including oil and gas exploration firms, fish farmers, shipping companies, and military forces from diverse nations. The potential for substantial growth in this sector is extensive.
In the first half of 2023, the revenues were up 38 % from the first half of 2022.
Connectivity
In 2022, the sales in the Connectivity department were M308 NOK, representing 25 % of total sales.
The Connectivity segment empowers customers and partners to solve demanding problems through tailored monitoring of physical parameters. This is done through data collection and tailored sensor analysis with connectivity devices, cloud computing, and data fusions directly integrated into the customer’s business software or as stand-alone services. Connectivity consists of the Intelligent Traffic Systems (ITS) and Smart Data sub-segments.
In the ITS sphere, NORBT provides a series of solutions including smart tachographs, On-Board Units, satellite-based truck tolling, and tailored solutions integrated with GNSS and GSM antennas One of the exemplary applications in this domain includes electronic payment solutions for road tolls and related services.
In the Smart Data realm, NORBT delivers the design and manufacturing of low-power wireless devices in the vehicle identification, monitoring, and reporting domain. A standout product in this category is the proprietary iTrack GPS tracking system, offering intelligent solutions for real-time monitoring of vehicle fleets, specially tailored for transportation companies.
The sales dynamics within the Connectivity segment present distinct challenges when compared to the Ocean niche. Despite this, NORBT has adeptly forged alliances and partnerships with prominent clients, establishing a recurring revenue stream rooted in the subscription to its technological services. This strategy has facilitated a stable trajectory of growth, contributing to a compounding effect that drives ever-higher revenues.
Moreover, NORBT has meticulously cultivated a global sales network, ensuring continued expansion and sustained growth potential. Consequently, the prospects for ongoing sales growth within the Connectivity segment appear promising, with ample room for sustained expansion over the foreseeable future.
This year, NORBT has been awarded a new contract for the delivery of tachograph enforcement modules worth M500 NOK. NORBT has doubled sales in this segment so far in 2023 in comparison to last year.
Product Innovation & Realization (PIR)
In 2022, the sales in the PIR division were M457 NOK, representing 38 % of total revenues.
In this domain, NORBT engineers create tailored solutions for various industries. PIR maintains long-term relationships with key customers, offering both R&D services and customized products based on NORBIT’s Intellectual Property. The segment excels in contract manufacturing of electronics for demanding sectors like automotive, medical, and marine industries. In 2022, PIR secured a significant M120 NOK agreement over four years, highlighting its prowess in delivering electronic modules for electromobility charging products, and reinforcing its position as a leading provider in the industry.
This year, PIR closed a new contract with an undisclosed Nordic customer for delivery of customized electronics, for data collection and transmission to the client’s cloud solution. Deliveries are scheduled over a period of 30 months, and the agreement has an estimated value of approximately NOK 80 million.
PIR revenues have continued to grow into 2023 at a rate of about 25 %. The ongoing securing of new contracts shows the potential for renewed growth within this sector.
Management quality
Norbit's management has coined its employees as "explorers," a term that, in some contexts, might be dismissed as hyperbole. Uber called the drivers on its platform “partners” for a while, now I think the Uber management calls them “earners”. In any case, NORBT is a knowledge business. The management is dependent on fostering enthusiasm, engagement, agility, and drive to innovate throughout its workforce. In this perspective, the “explorer” terminology might be more than mere hyperbole.
Operating within a streamlined organizational structure, NORBT prioritizes swift information dissemination across its diverse segments. This flat hierarchy empowers the company to promptly seize emerging business prospects and respond decisively to evolving market dynamics and competitive strategies.
Despite its relatively modest size, NORBT demonstrates a high level of professionalism at every organizational level. The company's management exhibits acceptable communication skills in a public company context, presenting reports and presentations that are investor-friendly and easy to comprehend. Notably, the management has made a significant commitment by initiating dividend payouts—an uncommon practice among small companies experiencing rapid growth. It is also very seldom that small companies with this kind of growth get net income profitable so early
This deliberate approach to investor relations underscores NORBT's dedication to honoring its investor community. Through their strategic communication, the company's management not only embraces innovative employees but also ensures that investors are taken seriously, fostering trust and confidence in NORBT's future endeavors.
Valuation
Obviously, NORBT is on a roll. Superb revenue growth and good profit margins have continued from earlier years into this one. I view the sonar products within the Ocean division as very strong with a long runway for good growth. The military use cases of both Winghead and Guardpoint give me a Kitron vibe. On one hand, I sense that sales growth within The Connectivity and PIR segment is going to be a bit more volatile than the aforementioned Oceans division. On the other hand, the Connectivity division has recurring revenue that serves to equalize the volatility in new sales, and the PIR segment demonstrates its value by winning new contracts. It looks like NORBT has gotten some recognition for being able to churn out reliable technology products that are customized individually for each and every customer.
The empirics have led me to construct a tempered bullish story. I anticipate the current growth trajectory to persist over the next two years, bolstered by contributions from all divisions. By 2026, I foresee a stabilization in the growth of the Connectivity and PIR segment, while the Oceans division is poised to maintain its upward momentum. The EBIT margin is expected to gradually improve as the company matures, refining its operational efficiency.
This story leads me to a fair value estimate of 90 NOK per share, derived from a thorough discounted cash flow (DCF) assessment as listed below. It is going to be somewhat hard for NORBT to beat my assumptions in 2024 and 2025. Especially, given the current market rumors that forewarn about a considerable cooling of enterprise IT spending in Northern Europe. Nevertheless, I have adjusted estimates downward for 2026, indicating that NORBT has the potential to surpass my projections in the long term. This assumes a continued emphasis on innovation, akin to the company's past endeavors, coupled with the introduction of compelling, tailored products to the market.
Share price technicals
My proficiency in technical analysis is limited; however, it appears that there are significant resistance levels at 48,- on the downside. Should these levels be breached, the subsequent resistance is anticipated at 40,-. Conversely, there is resistance at 56,- on the upside. If NORBT leverages the recent decline to establish a consolidation pattern between 48 and 56, it could pave the way for a substantial breakout to the upside in 2024.
It is crucial to observe the current weakness in the share price diligently. If the resistance at 48,- is breached and the investor community decides to test the 40,- level, it might present an exceptional buying opportunity. In any case, one should never underestimate the madness of Mr. Market. The share price can be viewed in the graph below.
Disclaimer: Important Information for Retail Investors
The information provided in this blog is intended for educational and informational purposes only and should not be construed as financial advice or a recommendation to buy, sell, or hold any securities. Investing in individual stocks involves inherent risks, and past performance is not indicative of future results. Before making any investment decisions, it is crucial to conduct thorough research and consider seeking advice from qualified financial professionals.
The author of this blog is a retail investor and not a licensed financial advisor or registered investment professional. While the author strives to present accurate and up-to-date information, there is no guarantee that the content provided is accurate, complete, or current. Market conditions can change rapidly, and stock prices can be volatile.
All investments carry a degree of risk, including the potential loss of principal. Retail investors should carefully assess their risk tolerance and investment goals before making any investment decisions. Diversification is a key strategy to manage risk, and investing solely in individual stocks may expose investors to higher levels of risk compared to a diversified portfolio.
The author may have positions in the stocks mentioned in the blog. These positions may change at any time, and the author is under no obligation to update readers on such changes. It is recommended that readers do their own due diligence and consider seeking advice from qualified professionals before acting on any information presented in this blog.
Investors should be aware of the inherent limitations of the information available on the internet, including the potential for misinformation and bias. Always verify information from credible sources and cross-reference any data presented in this blog.
In accordance with prudent compliance, the author encourages readers to carefully review and understand the prospectuses, annual reports, financial statements, and other relevant information before making investment decisions. Retail investors should be aware of their own financial situation and consult with appropriate professionals to ensure that their investment choices align with their individual circumstances and goals.
By accessing and using this blog, readers acknowledge and agree that they are responsible for their own investment decisions and any outcomes that may result. The author and any related parties are not liable for any losses, damages, or actions arising from the use of the information provided in this blog.
In conclusion, investing in individual stocks carries risks that may not be suitable for all investors. Retail investors are advised to exercise caution, conduct thorough research, and consider seeking guidance from qualified financial professionals to make informed investment decisions.