Autonomous Vessels And 2G Tolling Replacement Will Drive Stronger Long Term Potential

Catalysts

About Norbit

Norbit develops and manufactures advanced sonar, tolling and contract manufacturing solutions across Oceans, Connectivity and PIR segments.

What are the underlying business or industry changes driving this perspective?

• Growing use of autonomous surface and subsurface vessels, combined with wider seabed mapping needs, is supporting demand for Norbit’s sonar platforms such as the iWBMS X. This can translate into higher Oceans segment revenue and support EBIT margins through software upgrade sales layered on existing hardware.
• European plans to phase out 2G GSM networks are creating a replacement cycle for existing truck tolling units, while more countries adopt distance based road charging. This positions Norbit’s new 4G based GNSS on board unit and enforcement modules to capture recurring hardware demand and support Connectivity revenues and earnings.
• Heightened focus on defense and security, and preference for designed and made in Europe electronics, is supporting Norbit’s PIR contracts with defense clients. This can help sustain high factory utilization, improve operational leverage and support EBIT margins.
• Expansion of high speed SMT capacity and floor space in Roros and Selbu, including new SMT lines, increases Norbit’s ability to act as a scaling partner for selected technology customers. This can support PIR segment revenue growth and help spread fixed costs over higher volumes, improving net margins.
• R&D investments in products like the WBMS X sonar platform and GNSS on board units, together with in house M&A competence aimed at advanced technology targets, are building a broader product and customer base that can support longer term revenue growth and more resilient earnings across all segments.

Assumptions

This narrative explores a more optimistic perspective on Norbit compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Norbit's revenue will grow by 19.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 16.7% today to 19.8% in 3 years time.
• The bullish analysts expect earnings to reach NOK 763.5 million (and earnings per share of NOK 11.95) by about January 2029, up from NOK 378.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as NOK655.6 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 25.3x on those 2029 earnings, down from 31.7x today. This future PE is lower than the current PE for the NO Electronic industry at 45.0x.
• The bullish analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.77%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Oceans relies on high value sonar systems like WBMS X and Winghead, where sales are influenced by project timing, budget flushing and seasonality. A weaker order flow for seabed mapping or autonomous vessel adoption could leave capacity underused and weigh on segment revenue and EBIT margins.
• The bullish view leans heavily on a replacement cycle for 2G based tolling units. The GNSS on board unit program has already seen design and ramp up delays and order reshuffling between quarters, so further timing slippage or slower than expected 2G shutdowns in Europe could soften Connectivity revenue and pressure earnings.
• PIR growth is currently tied closely to defense and security customers and recent NOK 220 million of contracts, which concentrates exposure to a single end market. Any cutbacks, shifts in defense priorities or loss of a key client could reduce factory utilization and compress net margins.
• The company is adding high speed SMT lines and expanding floor space in Roros and Selbu ahead of fully locked in long term volumes. If PIR and Connectivity demand does not absorb this extra capacity, higher depreciation and fixed costs could dilute EBIT margins and net income.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Norbit is NOK240.0, which represents up to two standard deviations above the consensus price target of NOK207.5. This valuation is based on what can be assumed as the expectations of Norbit's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK240.0, and the most bearish reporting a price target of just NOK175.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be NOK3.9 billion, earnings will come to NOK763.5 million, and it would be trading on a PE ratio of 25.3x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of NOK188.4, the analyst price target of NOK240.0 is 21.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.