Aker Horizons (AKH NO) is a $1.2bn investment company created in 2020 to include Aker ASA’s assets in green tech and renewable energy. IPOed in February 2021, Aker Horizons is a majority-owned subsidiary of Aker ASA (which still holds 76% of its shares), a “planet-positive” platform dedicated to incubating and developing companies that solve fundamental sustainability challenges.
[Note: as it can get confusing, from now on “Aker” will reference the group holding company Aker ASA, while Aker Horizons will either be identified in full or by its ticker AKH, and the same for the other subsidiaries.]
The Aker modus operandi
Aker (AKER NO) is an industrial conglomerate dating back to the 1840s with a diversified portfolio of companies (including maritime assets, marine biotechnology and industrial software), but mostly concentrated in oil & gas: AKH is its second largest portfolio investment behind fossil fuel.
Aker is 68% owned by Kjell Inge Røkke, a self-made billionaire and Norway’s richest man whose son Kristian Røkke is CEO of AKH: it is kind of ironic that one of the most dynamic, environmentally friendly companies in Europe (AKH) is controlled by a man that media typically describe as an oil tycoon, but it’s never a good idea to judge a book by its cover.
Kjell Røkke became the largest shareholder in 1996: following a series of transactions, acquisitions (including the industrial group Kvaerner) and restructurings, in 2004 Aker relisted on the Oslo Stock Exchange. Since then, it has achieved an annualised total shareholder return (including dividends) of ~25% and a 6.5x increase in net asset value.
These strong returns are the result of active portfolio management and deal-making: in the early years, Aker’s performance was built on the boom in oilfield services, followed more recently by the growth in oil E&P which culminated in the creation of Aker BP, the product of the merger between Det Norske and BP subsidiary BP Norge in 2016.
In July 2020 Aker announced the creation of Aker Horizons, a “holding company dedicated to developing and operating companies within renewable energy and low-carbon segments”. Initially AKH’s portfolio consisted of stakes in two assets (Aker Offshore Wind and Aker Carbon Capture) spun-off from Aker Solutions, another portfolio company aiming to accelerate the transition to sustainable energy production powered by digital technology. In January 2021 these have been complemented by the acquisition of a 75% stake in Mainstream Renewable Power, active in wind and solar energy. Subsequently, in March 2021 Aker Horizons also launched and listed Aker Clean Hydrogen.
For a selected group of companies, the influence of the right kind of controlling shareholder is a benefit, not a burden as it is often suggested. In particular, it is always a good idea to align your own capital with exceptional families who act as active stewards of capital, creating wealth for themselves and minority shareholders (the often forgotten “G” in ESG).
These families are famed for their long-term “horizons”, and therefore are natural supporters of environmental issues, including climate change: the creation of Aker Horizons is indicative of how family-controlled companies think in generations, not quarters, securing future growth avenues. It is also a prime example of the active approach that the best families take to creating value, and Kjell Røkke has indeed been one of the most active.
Aker sees AKH strategic developments not as a step-change as some have depicted it, but rather as an extension of a trend that forms an integral part of Aker’s history. This evolution should be seen within the context of Aker having continually adapted and moved with the times, from a manual workshop to shipbuilding; from offshore construction to oilfield services; and now from oil & gas to renewables. At each stage, the knowledge, skills and capital of the prior step inform the next: for example, the expertise in deep water offshore wind is built on 40 years’ experience in designing, delivering and servicing semi-submersible drilling and production platforms in the oil & gas industry. Likewise, Aker’s proprietary carbon capture technology has been developed internally since the 1990s.
The Aker Horizons “eco-system”
Aker Horizons invests in and develops companies within renewable energy sectors and other technologies that make material contributions to reducing emissions or promote sustainable living. It currently holds a diversified portfolio of industrial holdings across private and listed investments, plus a “sunrise” portfolio of high impact strategic options for future growth.
Its investment mandate is grounded in eight of the United Nations Sustainable Development Goals (“SDG”): over the coming years, Aker Horizons intends to allocate NOK 100 billion (approx. $12bn) to planet-positive investments, targeting the removal of 25 million tonnes of CO2 per year by 2025, which is equivalent to half of Norway’s total annual emissions.
As part of the wider Aker’s network, AKH benefits not only from its 180-year history in creating industrial frontrunners within complex businesses, but can also rely on other competencies in order to build the same position in the green transition: (i) an industrial edge through alliances across a range of disciplines, (ii) access to knowledge within digitalisation, (iii) operational and technical capabilities, (iv) commercial synergies, and (v) attracting top talent in Norway and abroad. And despite its size, every company within the group is still very much “entrepreneurial”.
Collectively, AKH’s companies are active across the whole value chain, from energy production to transmission and the capture and storage of emissions. As is indicative of how family run businesses manage risk, the diversified nature of its operations means that success is not wedded to one single future energy market outcome.
In January 2021 AKH raised NOK 4.2 bn (~$500m) in a private placement with new investors and at the same time was admitted to trading on Euronext Growth, the high-growth market for small- and mid- sized companies. In November it successfully completed a second private placement (where Baillie Gifford acquired a 4.6% stake and became the second shareholder), raising an additional NOK 1 bn at NOK 34.50 per share (vs. a current price of less than NOK 20) to strengthen the balance sheet ahead of investments in its portfolio companies, including the further development of Mainstream Renewable Power. Across all its subsidiaries, last year it raised a total of NOK 12 billion ($1.4 bn).
AKH distinguishes its portfolio companies between platform investments and a sunrise portfolio, with the first group comprising larger, more mature and/or separately listed entities within certain focus areas, and the latter comprising smaller, new and early-stage ventures as well as minority holdings in ongoing initiatives and companies being incubated before being established as separate legal entities.
The platform companies
Aker Carbon Capture (ACC NO): one of the few companies globally that is involved in the entire value chain to deliver technology for carbon capture, utilisation, and storage (“CCUS”). These solutions and services are provided to plant owners and operators across various industries but prioritising four market segments: 1) cement production, 2) bio- or waste-to-energy generation, 3) gas power and 4) blue hydrogen. CCUS has the potential to remove CO2 emissions across these segments and thus support the plant operators on their journey towards establishing sustainable business models for the future.
Last August, ACC completed a capital increase for NOK 840 million ($95m) at NOK 22 per share to further accelerate the growth of its market-leading offering. In October 2021 then AKH sold part of its shares to Baillie Gifford and two other institutional investors at a price of NOK 23.80 for a total consideration of NOK 1 bn, thus reducing its ownership to 42.3%.
Aker Clean Hydrogen (ACH NO): an integrated industrial producer that develops, builds and operates modularised clean hydrogen and ammonia facilities. ACH was listed in March 2021 (also on Euronext Growth) via a capital increase of NOK 3 bn ($290m) which reduced AKH’s ownership to the current 77%.
Aker Offshore Wind (AOW NO): a pure play offshore wind developer focused on deep waters (deeper than 60 meters), its current portfolio consists of development assets located in South Korea, US, Norway and Scotland (plus additional projects in Sweden, Portugal and Japan).
Mainstream Renewable Power (MRP, not listed): last year AKH acquired 75% of Dublin, Ireland, headquartered MRP (with existing shareholders keeping the remaining 25%) at a €900 million equity valuation. The transaction was partially funded by the net proceeds of the private placement and a NOK 1.5 billion convertible bond fully subscribed by Aker. Together with a further NOK 2 billion shareholder loan, this highlighted the level of support for capital market activities coming from the very top of the group.
MRP is a global renewable energy company that builds and operates offshore and onshore wind farms and solar power plants in high growth markets worldwide. The portfolio of projects under operation/ development is tilted to emerging markets in Africa (South Africa, Ghana, Senegal and Egypt), Asia (Vietnam, Philippines and Australia) and South America (Chile), but it also includes projects in Canada, US and Europe (England, Scotland and Ireland).
In November 2021 MRP raised a further €90 million in equity to accelerate new market entries and build-out of renewable assets: AKH fully subscribed to its proportional stake.
The Sunrise Portfolio
REC Silicon (RECSI OL, listed on Euronext Oslo) is one of the world’s largest producers of high-performance polysilicon for the photovoltaic and solar energy industries. Initially established in 1996, it was later spun-off from Renewable Energy Corporation ASA in 2013 when the former separated its silicon and solar PV businesses into two independent listed companies. Aker acquired a 24.7% strategic position in 2020, and in November 2021 sold part of this stake to Hanwha Solutions at NOK 20 for a total of NOK 438 million, thus reducing its ownership to the current 16.7%.
Founded by Kvaerner in 1853, Rainpower (100% ownership) offers proprietary technologies and services to the hydropower industry: its products range from turbines, governor systems, control systems and other equipment, maintenance services and rehabilitation, as well as technology for hydropower system design and upgrades. Rainpower is headquartered in Norway with offices in Sweden and China.
Acquired as part of the MRP transaction, SuperNode (49.9% ownership) is a technology company which designs superconductor cables to address the significant future need for higher capacity cables with lower power loss. Its principal target markets are large offshore wind power transmission and onshore grid reinforcements.
Valuation
So far, AKH has not been a happy investment for those who subscribed to its IPO: priced at NOK 35 (similarly, the November private placement was completed at NOK 34.50), the stock trades today at ~NOK 18, for a 49% loss. The underlying listed companies have not done better, with ACH down over 70% and AOW down 16% from their listing prices. Only ACC is up a respectable +260%, but also down -47% since November.
As an investment company, AKH’s NAV should be fairly straightforward to determine and compare to its current market price. But this is indeed the tricky part, as all the holdings within AKH have “venture capital characteristics”: its business model is clearly defined as “to identify and incubate ventures […], and subsequently grow and develop them to maximise the value of the investments for the Company’s shareholders.” So, looking at their performance on a day-to-day basis makes little sense.
On the other hand, the following table shows that the three major listed subsidiaries are all still money losing: in total, they lost $24m on revenues of $28 million in the first 9 months of 2021. But thanks to the various placements, collectively they still have a significant net cash position ($500 million), and therefore will be able to fund both current opex and growth capex plans. Plus, as discussed before, AKH has raised additional funding to support new investments and has the full backing of the parent Aker.
From a valuation point of view, AKH currently trades at a 18% discount to my best estimate of its NAV (including the calculation of the new cash position). But with 40% of Gross Asset Value in unlisted assets, NAV is highly dependent on the “valuation” of MRP, in addition – obviously – on how good the listed subsidiaries will turn out to be.
Overall, the biggest selling point for a long thesis in AKH is not just participating in the “green & sustainable energy revolution”, but rather the outstanding track record of Aker’s majority shareholder and its management team. Kjell Røkke is definitely one of the most underappreciated and unsung capital allocators around, and this time its “big move” is into energy transition.
Both Røkke and Aker have the patience, mindset and resilience for long-term wealth creation: public markets very often much less so.