Norwegian/Fredriksen: shares lack lift even with lighter debt payload

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Norway-born shipping magnate John Fredriksen has form in using debt to fund growth. With Norwegian Air Shuttle he has done the opposite, injecting much-needed equity from 2019 onward to clean up a messy balance sheet. His Geveran Trading has since become the top shareholder, with a 11.9 per cent holding.

Tossing out the debt baggage got the low-cost carrier off the ground again. Unfortunately, the market has a clear fear of flying Norwegian.

Second-quarter results highlighted the recovery since a forced restructuring in 2021, including talk of a dividend. Net debt at June was NKr3.7bn ($345mn), just over half expected ebitda. Compare that with NKr58bn it held in 2019.

Four years on, after a painful debt restructuring and plenty more equity from Fredriksen, a boom in air travel has produced a quarterly operating profit of NKr538mn. Ignore last year’s NKr2bn refund of jet prepayments by Boeing, and that turns round a loss.

Direction of travel matters more. Norwegian garnered about a tenth more passengers in the second quarter than last year at 5.6mn. Strong bookings this summer and into October augur well. Norwegian may be able pass on any cost inflation that boosted revenues.

Norwegian is not just soaring on powerful updrafts. It aims to grow its dominant Nordic position, just as rival Sweden’s SAS copes with its own bankruptcy. Norwegian last month agreed to acquire local short-haul airline Widerøe for NKr1.1bn. Price-killer Ryanair has taken note, opening a new base in Copenhagen for flights into Europe.

Two years after the restructuring Fredriksen might have hoped for a better return. The share price has gone nowhere. Most of Europe’s airlines look cheap these days, and Norwegian more so. On an enterprise value just two times forward ebitda, the stock trades about a third below peers. A bounce in oil prices since June has hurt airline stocks.

A long-promised travel boom has finally materialised. But investors have chosen to visit other sectors instead.

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