Enersol's Acquisitions And Turnwell's Ventures Will Boost Future Service Capabilities

Key Takeaways

• Expansion of rig fleet and tech acquisitions aims to drive revenue growth, operational efficiency, and margins for ADNOC Drilling.
  
• Regional expansion and decarbonization efforts are expected to diversify revenue streams and maintain strong net margins.
  
• Reliance on joint ventures and regional expansions poses operational risks, margin compression challenges, and financial flexibility strains from high capital expenditures and competitive market pressures.

Catalysts

Engages in the provision of drilling and construction services in in the United Arab Emirates.

• Continued expansion of the rig fleet, including the addition of three new island rigs in 2026, is expected to drive future revenue growth as ADNOC Drilling supports ADNOC’s broader capacity expansion plans.
  
• The acquisition of tech-enabled oilfield service companies by Enersol is set to enhance ADNOC Drilling's service capabilities, boosting operational efficiency and potentially increasing revenue and margins.
  
• Increased activity in the unconventional oil and gas segment, evidenced by the joint venture Turnwell's achievements in rapid well delivery, indicates potential for substantial revenue and earnings growth as operations scale up.
  
• Regional expansion ambitions, as ADNOC Drilling aims to secure contracts and operate in neighboring markets like Kuwait and Oman, are expected to diversify revenue streams and increase overall earnings.
  
• ADNOC Drilling’s commitment to decarbonization, including the deployment of hybrid rigs with energy efficiency enhancements, is anticipated to optimize operational costs and contribute to maintaining strong net margins in the future.

ADNOC Drilling Company P.J.S.C Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ADNOC Drilling Company P.J.S.C's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 32.3% today to 32.7% in 3 years time.
• Analysts expect earnings to reach $1.6 billion (and earnings per share of $0.1) by about March 2028, up from $1.3 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $2.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.1x on those 2028 earnings, up from 17.4x today. This future PE is greater than the current PE for the AE Energy Services industry at 13.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 21.13%, as per the Simply Wall St company report.

ADNOC Drilling Company P.J.S.C Future Earnings Per Share Growth

Risks

• ADNOC Drilling's significant growth is heavily tied to its unconventional business and regional expansions, both of which carry operational and execution risks that could impact future revenue projections if not managed successfully.
  
• The guidance for margin compression, particularly in the face of rapid growth in the lower-margin OFS segment, suggests potential challenges in sustaining net margins at the current high levels as revenue mix changes.
  
• The strong reliance on joint ventures like Enersol for technological and operational efficiency improvements may expose the company to integration risks or potential lower-than-expected performance, possibly affecting earnings.
  
• The need for substantial capital expenditures, ranging dramatically up to over a billion dollars including M&A, could strain cash flow and put pressure on financial flexibility if returns do not materialize as projected.
  
• Despite strategic growth plans, competition within regional and unconventional markets and dependence on further contract awards suggest vulnerability; any slowdown in awarded projects or unfavorable market developments could impact revenue growth and profitability targets.

Valuation

• The analysts have a consensus price target of AED6.311 for ADNOC Drilling Company P.J.S.C based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of AED6.9, and the most bearish reporting a price target of just AED5.01.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.0 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 30.1x, assuming you use a discount rate of 21.1%.
• Given the current share price of AED5.21, the analyst price target of AED6.31 is 17.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.