Hiking Looks Better Than Oil to Private Equity Firm Altor
A prepares to set out on a cross country ski training session during a training exercise. (Photographer: Cole Burston/Bloomberg)

Hiking Looks Better Than Oil to Private Equity Firm Altor

(Bloomberg) -- Private equity firm Altor is betting that fitness and outdoor activities have a brighter future in Norway than another of the Nordic country’s specialties -- oil.

The Swedish investor, which became the biggest owner in struggling Norwegian sports retailer XXL ASA last year, has so far racked up losses on its investment as the entire industry suffers from fierce competition from web-based sales and a mild winter. But Altor is aiming to turn the company around and says the market will improve.

“XXL is by far the best platform in the Nordics,” Hugo Maurstad, partner at Altor Equity Partners AS and chairman of XXL, said by phone. “It’s an attractive opportunity.”

The Oslo-based retailer just filed its second profit warning since October and had to seek looser loan terms and raise capital last year, allowing Altor to raise its stake to 20%. By the end of last week, the stock had dropped almost 90% since a peak in 2016, and most analysts still recommend clients sell the share.

Altor bought about 10 million shares at 25 kroner apiece in June, according to a company announcement, before adding about 17 million more at 15 kroner a share in a placement later. Those shares have lost about 120 million kroner ($13 million) in value since, even after the stock jumped on Monday, according to Bloomberg calculations.

Market conditions are challenging,” Maurstad said. “A lot of the capacity taken out of the market has been much smaller stores. But several major players are adjusting and reducing capacity. That will have to happen in some shape and form.”

XXL rose as much as 11% on Monday, after local newspaper Dagens Naeringsliv reported the chief executive officer of tanker company Frontline Ltd., Robert Hvide Macleod, has built a holding of 600,000 shares in the retailer.

Fun Stores

Beyond capacity adjustments, Altor is betting XXL can revitalize its stores. The company has hired a new chief executive officer, the outgoing CEO of discount retailer Europris ASA, Pal Wibe, to lead the effort. XXL wants to make the stores “more fun,” betting that sports and leisure is one area where the physical world will keep an edge over digital sales, Maurstad said.

“We’re talking about your hobby -- you’re not going there to get milk and bread,” he said. “I don’t think brick and mortar retail will be gone.”

Maurstad sees a an upside for lifestyle-oriented companies as Scandinavians live longer and get richer. Altor, which manages about 8.3 billion euro ($9.2 billion), is also invested in fitness chain Sats ASA and Nordic Leisure Travel Group, the former Nordic business of Thomas Cook.

Oil Aversion

Norwegians may be known for their love of the great outdoors, but their country is also western Europe’s biggest oil and gas producer. That’s an area Altor isn’t as excited about.

Investors, energy companies and policy makers worldwide are grappling with how to adapt to climate change and oil industry valuations, especially service providers, have yet to recover from the market slump in 2014-2017. Altor last year exited its stake in Spectrum ASA, a seismic data company that helps oil companies find deposits under the seabed, and isn’t about to get into new investments in Norway’s oil and gas industry.

“We’re very careful with new investments in that sector,” Maurstad said. “Because with the negative view on the industry long term, we are worried about the exit multiples. And that makes it difficult to make the cases work with our return targets.”

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