Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Norway-based Kongsberg Gruppen ASA. The outlook is stable. At the same time NCR affirmed the 'N2' short-term rating. At the same time NCR affirmed the 'A-' senior unsecured issue rating.
Rating rationale
The affirmation of the long-term rating reflects our expectation that Kongsberg Gruppen's cash position and cash flow will remain strong and its financial gearing low. We expect the company's operating efficiency and EBITDA margins to remain strong and even improve over our forecast period through 2026 due to a strong order back-log.
The long-term rating reflects Kongsberg Gruppen's leading position in its niche markets, strong cash position and cash flow, and low financial gearing. It also reflects the company's underlying positive EBITDA margin trends and strong customer demand. However, the rating is constrained by the company's small size in comparison with its peers.
We lower our standalone credit assessment by one notch due to reduced availability of funding from investors adverse to defence industry activity, even though the Russian invasion of Ukraine appears to have made some investors rethink their position. Conversely, we add back a notch to reflect the likelihood that the majority owner, the Norwegian government, would support the company if needed. In sum, the adjustment factors are neutral.
We have revised our assessment of the operating environment to reflect strong near-term industry dynamics with rising demand due to increasing defence investments across Europe and a growing order back-log. We have also raised our assessment of Kongsberg Gruppen's financial ratios to reflect a growing cash position and rapidly expanding EBITDA and cash flows supported by stable margins across most business segments.
Stable outlook
The stable outlook reflects our expectation that Kongsberg Gruppen will maintain its position as a strategic investment for the Norwegian government and that the government will maintain its controlling interest. We expect new regulations and energy solutions to support demand for the company's green technology in the maritime segment. We also expect demand for defence, marine and other advanced technologies to remain high. In addition, we assume that the company will maintain strong financial credit metrics.
We could raise the rating to reflect improved profitability with EBITDA margins rising towards 20% or increased demand for maritime products, for example due to green shipping. We could also raise the rating to reflect a long-term change in investor attitudes to defence companies.
We could lower the rating in the event of reduced government commitment or to reflect increased financial gearing, leading to net debt /EBITDA above 1.5x over a protracted period. We could also lower the rating to reflect lower profitability, leading to an EBITDA margin of below 10% on a protracted basis.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | A- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | A- | A- |
Contacts:
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Sean Cotten, chief rating officer, +46735600337, sean.cotten@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024 and NCR's Rating Principles published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.