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It's been a year since you posted this. Things have changed since then, including the share price.
For me, there are four key drivers of driving durable shareholder returns:
1. Sales Growth
2. Margin Improvements
3. Multiple Expansion
4. Reduction in Share Count
Norbit has been driving (1) hard and, judging by its ambitions, will drive this higher - so far so good.
In respect of (2), margin seems to have reached a plateau, so while this has factored into past returns, it is unlikely to drive future returns.
Most of the shareholder returns in the past year or so have been multiple expansion - perhaps irrational exuberance on the part of investors. The multiple now looks stretched. This would imply that no returns will be driven by this factor and, more of a concern, is that if the multiple contracts it will negate the positive effect of top line growth.
The share count has not reduced. If anything it has slightly increased. So this would result in mild dilution, also working against shareholder returns.
The way I see it - past performance will not be repeated in the years ahead. Best case scenario shareholder returns track top line growth. More likely, they will lag behind top line growth because of drag caused by factors (2), (3) and (4).
What is your view currently, given the doubling of the share price since you wrote this article (the economic value of the business certainly hasn't doubled in a year - so has the price run too far ahead of the underlying business?)
Excellent question, and the ever important part of analysis in terms of owning shares in companies. Will they be able to repeat the past success?
First of all, I have a differing view than you on most of your points.
Yes, multiple expansion has driven returns - but I would say it's a quite an exaggaration to say it's driven most of the shareholder returns. Since publishing my article EBIT is up by 20%, profit is up by 31.3% and working capital has improved whilst barely levering the company.
There is also a need to look at the relativeness to the multiple expansion: In my article I clearly state that growth expectations for Norbit was quite low in May of last year with my reverse DCF showing an expectation of 2% growth. I.e., Norbit was at that time rated as a company that had peaked whilst the best was ahead. A bit of multiple appreciation is therefore expected.
We should rather ask ourselves: What multiple does a company with the growth trajectory of Norbit deserve? Currently, Norbit is sitting at ~18x EV/EBIT of 2025. Not cheap, but in my opinion not exactly pricy for a company that is set to grow between 15-20% the next 5 years or so. Could we see some further expansion here? I wouldn't be surprised if Norbit gets priced to around 20x fwd EV/EBIT.
In terms of margins, the sensible thing is to assume that 20% EBIT-margins as guided by management will be the long term level. That's pretty alright. I however do think there's room for some incremental improvements. First of all, I'm convinced that the Innomar-portion of sales will experience better margins as we've seen that across other acquisitions. In addition, the scale that connectivity has gotten will drive better margins in this sub-segment and there is good reason to believe that Oceans have a ton of opportunity to move into higher margin products as well. PIR is also moving in the right direction, and is set to be a great top-line grower with stronger margins than what we saw last year. Do I expect a ton of margin improvement? Not necessarily, but I would not be surprised to see ambitions of getting to around 25% in their next guidance.
We won't see a lot of reduction in shares - but we will see a substantial increase in dividends going forward. The founder(s) need it to pay their taxes. It's not as good as buybacks, but it is a pretty good deal to reinvest dividends into increased share holdings.
And, you skip over a bunch of optionalities here:
1. Guidance is set to be increased in 2026, potentially already in H1'26.
2. Visibility on product exposure in Oceans could be another trigger (if Norbit gets priced as a UUV tech company we'll definitely see multiple expansion)
3. Visibilty on exposure to european defense segment can be another trigger (PIR got as much exposure to contract manufacturing for defense in Europe as Kitron, if not more)
4. Further scale benefits to Connectivity will be a long term margin tailwind as well
5. Balance sheet is looking ripe for more acquisitions, and the market has yet to fully appreciate how good Norbit has been at growing through M&A.
In the end, I understand where you are coming from. But as was the case in May 2024 we needed to look under the hood of Norbit so to speak, and it's wise to do so again. If you do, you'll see a company that CEO Weisethaunet has described as one that has moved up into the big leagues since last year, in most segments. Do I expect another year of doubled shareprice? Of course no. Do I think that Norbit can drive double digit returns from this level in the years to come? Yes, and with confidence.
Thank you for your very considered response. I need to analyze this company properly myself. My questions so far came only from your article.
This is a great company, no doubt. But buying a great company at the wrong price makes for a poor investment. So I need to work out if it is the right, or the wrong price.
I note that at the end of 2023 it traded at 18x earnings, yet by the end of calendar Q1 2025 it was trading at over 41x earnings.
That largely explains the doubling of the share price over the past year. Top line growth has slowed and was 15% in 2024, so that certainly doesn't justify doubling the share price, particularly when the share count increased by ~4%.
Shareholder returns driven largely by multiple expansion always worries me because it is not durable. Multiples aren't likely to climb from here and have already softened in 2025, currently hovering in the mid 30s to earnings.
As Howard Marks always says - investors rarely consider the downside, they only chase upside returns. For me, the asymmetric risk/reward skew is looking unfavourable with more chance of further contraction than expansion in the short term.
The other thing that I don't like to see is irrational capital allocation. In 2024 the company raised capital via both the debt and equity markets. It issued 446m NOK in debt instruments (against repayments of 191m) and it issued 205m NOK in equity. The conclusion is that it didn't have enough capital to meet its needs. So the million dollar question is why did it pay out 152m of balance sheet capital as dividends? Dividends are supposed to be a means of returning un-needed capital to shareholders. Try to reconcile this decision. It is diluting shareholders to pay them a dividend - completely irrational.
If this is about insiders needing money to pay tax liabilities - why can't they sell down some of their shares? Why do they think it is OK to put their personal needs before doing what is best for the company and its other shareholders?
I will put this on my list of companies to study for sure - thank you for bringing it to my attention.
To be frank, it seems to me that your current assessment of Norbit is mostly anchored in a backward looking perspective and with a superficial understanding of their trajectory, culture and business.
When you say 41x earnings you're talking about LTM earnings after a year where Oceans have had a 51% growth and added a great acquisition that'll drive a ton of synergies and sales at just above 6x EV/EBIT. They've also gotten their biggest contract in Connectivity, and PIR has experienced a strong and most likely lasting operational improvement. As I'm sure you're aware, we invest for the future - not for the past, also something that Howard Marks has stressed many times.
The multiple expansion is in my opinion not explained via looking backwards: It should be understood via the future which is in my opinion brighter today than what it was last year. They're guiding for another year of great growth, with a high probability of EBIT landing at around 480-500mln NOK (corresponding to around 40% growth). And I'll repeat what I said in my first article, the management of Norbit has consistently underpromised and overdelivered.
The way you construct the argument around dividends, share issuance and tax needs is to be frank erronous and you're constructing a chain of corresponding events that are not based in anything but looking at numbers without context. First of all, the founders actually sold some shares to cover the need (with a following share price reduction because the market misconstrued this action as well). Share issuance is connected to Innomar-acqusition, and if you read their comments on why it makes sense. Leverage is also tied to the acqusition, and is still below their own target. I struggle to see the issue, but anything can be framed as negative if you put your will into it.
I appreciate the criticsm of the case, and only future will show if your pessimism, or my optimism has been warranted. Up until that time my best advice is to understand the business, where it is headed and try to avoid anchoring. Good luck with your research, I've throughout my writings shared a ton of resources that can be helpful to understand the business better (I particularly recommend anything I've shared from Erik Stangeland).
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To seed, build, and nurture timeless, intangible human capitals — such as resilience, trust, truth, evolution, fulfilment, quality, peace, patience, discipline, relationships and conviction — in order to elevate human judgment, deepen relationships, and restore sacred trusteeship and stewardship of long-term firm value across generations.
A refreshing take on our business world and capitalism.
A reflection on why today’s capital architectures—PE, VC, Hedge funds, SPAC, Alt funds, Rollups—mostly fail to build and nuture what time can trust.
“Built to Be Left.”
A quiet anatomy of extraction, abandonment, and the collapse of stewardship.
"Principal-Agent Risk is not a flaw in the system.
It is the system’s operating principle”
Experience first. Return if it speaks to you.
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It's been a year since you posted this. Things have changed since then, including the share price.
For me, there are four key drivers of driving durable shareholder returns:
1. Sales Growth
2. Margin Improvements
3. Multiple Expansion
4. Reduction in Share Count
Norbit has been driving (1) hard and, judging by its ambitions, will drive this higher - so far so good.
In respect of (2), margin seems to have reached a plateau, so while this has factored into past returns, it is unlikely to drive future returns.
Most of the shareholder returns in the past year or so have been multiple expansion - perhaps irrational exuberance on the part of investors. The multiple now looks stretched. This would imply that no returns will be driven by this factor and, more of a concern, is that if the multiple contracts it will negate the positive effect of top line growth.
The share count has not reduced. If anything it has slightly increased. So this would result in mild dilution, also working against shareholder returns.
The way I see it - past performance will not be repeated in the years ahead. Best case scenario shareholder returns track top line growth. More likely, they will lag behind top line growth because of drag caused by factors (2), (3) and (4).
What is your view currently, given the doubling of the share price since you wrote this article (the economic value of the business certainly hasn't doubled in a year - so has the price run too far ahead of the underlying business?)
I welcome your views.
Hey there James!
Excellent question, and the ever important part of analysis in terms of owning shares in companies. Will they be able to repeat the past success?
First of all, I have a differing view than you on most of your points.
Yes, multiple expansion has driven returns - but I would say it's a quite an exaggaration to say it's driven most of the shareholder returns. Since publishing my article EBIT is up by 20%, profit is up by 31.3% and working capital has improved whilst barely levering the company.
There is also a need to look at the relativeness to the multiple expansion: In my article I clearly state that growth expectations for Norbit was quite low in May of last year with my reverse DCF showing an expectation of 2% growth. I.e., Norbit was at that time rated as a company that had peaked whilst the best was ahead. A bit of multiple appreciation is therefore expected.
We should rather ask ourselves: What multiple does a company with the growth trajectory of Norbit deserve? Currently, Norbit is sitting at ~18x EV/EBIT of 2025. Not cheap, but in my opinion not exactly pricy for a company that is set to grow between 15-20% the next 5 years or so. Could we see some further expansion here? I wouldn't be surprised if Norbit gets priced to around 20x fwd EV/EBIT.
In terms of margins, the sensible thing is to assume that 20% EBIT-margins as guided by management will be the long term level. That's pretty alright. I however do think there's room for some incremental improvements. First of all, I'm convinced that the Innomar-portion of sales will experience better margins as we've seen that across other acquisitions. In addition, the scale that connectivity has gotten will drive better margins in this sub-segment and there is good reason to believe that Oceans have a ton of opportunity to move into higher margin products as well. PIR is also moving in the right direction, and is set to be a great top-line grower with stronger margins than what we saw last year. Do I expect a ton of margin improvement? Not necessarily, but I would not be surprised to see ambitions of getting to around 25% in their next guidance.
We won't see a lot of reduction in shares - but we will see a substantial increase in dividends going forward. The founder(s) need it to pay their taxes. It's not as good as buybacks, but it is a pretty good deal to reinvest dividends into increased share holdings.
And, you skip over a bunch of optionalities here:
1. Guidance is set to be increased in 2026, potentially already in H1'26.
2. Visibility on product exposure in Oceans could be another trigger (if Norbit gets priced as a UUV tech company we'll definitely see multiple expansion)
3. Visibilty on exposure to european defense segment can be another trigger (PIR got as much exposure to contract manufacturing for defense in Europe as Kitron, if not more)
4. Further scale benefits to Connectivity will be a long term margin tailwind as well
5. Balance sheet is looking ripe for more acquisitions, and the market has yet to fully appreciate how good Norbit has been at growing through M&A.
In the end, I understand where you are coming from. But as was the case in May 2024 we needed to look under the hood of Norbit so to speak, and it's wise to do so again. If you do, you'll see a company that CEO Weisethaunet has described as one that has moved up into the big leagues since last year, in most segments. Do I expect another year of doubled shareprice? Of course no. Do I think that Norbit can drive double digit returns from this level in the years to come? Yes, and with confidence.
Thank you for your very considered response. I need to analyze this company properly myself. My questions so far came only from your article.
This is a great company, no doubt. But buying a great company at the wrong price makes for a poor investment. So I need to work out if it is the right, or the wrong price.
I note that at the end of 2023 it traded at 18x earnings, yet by the end of calendar Q1 2025 it was trading at over 41x earnings.
That largely explains the doubling of the share price over the past year. Top line growth has slowed and was 15% in 2024, so that certainly doesn't justify doubling the share price, particularly when the share count increased by ~4%.
Shareholder returns driven largely by multiple expansion always worries me because it is not durable. Multiples aren't likely to climb from here and have already softened in 2025, currently hovering in the mid 30s to earnings.
As Howard Marks always says - investors rarely consider the downside, they only chase upside returns. For me, the asymmetric risk/reward skew is looking unfavourable with more chance of further contraction than expansion in the short term.
The other thing that I don't like to see is irrational capital allocation. In 2024 the company raised capital via both the debt and equity markets. It issued 446m NOK in debt instruments (against repayments of 191m) and it issued 205m NOK in equity. The conclusion is that it didn't have enough capital to meet its needs. So the million dollar question is why did it pay out 152m of balance sheet capital as dividends? Dividends are supposed to be a means of returning un-needed capital to shareholders. Try to reconcile this decision. It is diluting shareholders to pay them a dividend - completely irrational.
If this is about insiders needing money to pay tax liabilities - why can't they sell down some of their shares? Why do they think it is OK to put their personal needs before doing what is best for the company and its other shareholders?
I will put this on my list of companies to study for sure - thank you for bringing it to my attention.
To be frank, it seems to me that your current assessment of Norbit is mostly anchored in a backward looking perspective and with a superficial understanding of their trajectory, culture and business.
When you say 41x earnings you're talking about LTM earnings after a year where Oceans have had a 51% growth and added a great acquisition that'll drive a ton of synergies and sales at just above 6x EV/EBIT. They've also gotten their biggest contract in Connectivity, and PIR has experienced a strong and most likely lasting operational improvement. As I'm sure you're aware, we invest for the future - not for the past, also something that Howard Marks has stressed many times.
The multiple expansion is in my opinion not explained via looking backwards: It should be understood via the future which is in my opinion brighter today than what it was last year. They're guiding for another year of great growth, with a high probability of EBIT landing at around 480-500mln NOK (corresponding to around 40% growth). And I'll repeat what I said in my first article, the management of Norbit has consistently underpromised and overdelivered.
The way you construct the argument around dividends, share issuance and tax needs is to be frank erronous and you're constructing a chain of corresponding events that are not based in anything but looking at numbers without context. First of all, the founders actually sold some shares to cover the need (with a following share price reduction because the market misconstrued this action as well). Share issuance is connected to Innomar-acqusition, and if you read their comments on why it makes sense. Leverage is also tied to the acqusition, and is still below their own target. I struggle to see the issue, but anything can be framed as negative if you put your will into it.
I appreciate the criticsm of the case, and only future will show if your pessimism, or my optimism has been warranted. Up until that time my best advice is to understand the business, where it is headed and try to avoid anchoring. Good luck with your research, I've throughout my writings shared a ton of resources that can be helpful to understand the business better (I particularly recommend anything I've shared from Erik Stangeland).