Rising Global Rates And Policy Risks Will Curtail Offshore Orders

Key Takeaways

• Reliance on large offshore wind projects amid geopolitical, regulatory, and macroeconomic uncertainties exposes DEME to revenue volatility and unpredictable market gaps.
  
• Rising competition, potential regulatory changes, and costly technology adoption threaten profitability and could erode margins across core business segments.
  
• Strong order book, segment growth, margin improvement, and robust cash flow position DEME for sustained expansion, operational resilience, and increased value from energy transition trends.

Catalysts

Provides marine solutions in the fields of offshore energy, dredging, marine infrastructure, and environmental works in Belgium, Europe, Africa, the United States, Asia, Oceania, and the Middle East.

• DEME's recent surge in turnover and record profit is unlikely to be sustained as rising global interest rates and tightening financing conditions have already reduced the US offshore wind order book from 18 percent to 12 percent, and additional project cancellations or delays in both the US and Europe will threaten backlog replenishment and suppress revenue growth beyond 2025.
  
• The company is increasingly exposed to substantial geopolitical and regulatory risks, with the Trump administration's lack of support for renewables, the risk of new import duties on vessels, and frequent project permitting delays, all of which could freeze or reduce the size of its addressable markets and create long, unpredictable gaps in new work, impacting both revenues and net income.
  
• Heavy dependence on large-scale offshore wind and energy projects amplifies the risk of revenue volatility, as government policy uncertainty and broader macroeconomic pressures make future subsidy schemes, tender activity, and final investment decisions less reliable, undermining long-term backlog visibility and potentially depressing earnings.
  
• High operating leverage from DEME's capital-intensive, specialized fleet means that any normalization of vessel utilization rates-already flagged as unsustainable for Offshore Energy-will significantly magnify the negative impact of even small declines in project activity, leading to rapid compression of margins and swings in net profit.
  
• Intensifying competition from Asian and Middle Eastern marine contractors, coupled with the potential for costly adoption of new technology and tightening of environmental regulations against key activities like dredging, threaten both market share and cost structure in core segments, prompting persistent pressure on net margins and eroding overall profitability over the long run.

DEME Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on DEME Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming DEME Group's revenue will grow by 1.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 7.0% today to 6.5% in 3 years time.
• The bearish analysts expect earnings to reach €278.9 million (and earnings per share of €10.96) by about July 2028, down from €288.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 15.2x on those 2028 earnings, up from 11.5x today. This future PE is greater than the current PE for the BE Construction industry at 11.4x.
• Analysts expect the number of shares outstanding to decline by 0.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.88%, as per the Simply Wall St company report.

DEME Group Future Earnings Per Share Growth

Risks

• DEME's order book reached a record high of €8.2 billion, double its 2024 turnover, and has shown consistent multi-year growth, creating strong revenue visibility and a robust pipeline that could support earnings stability and growth in the medium-to-long term.
  
• The company's turnover grew by 25% in 2024, with all segments-including Offshore Energy and Dredging & Infra-posting double-digit gains, and offshore wind activity and fleet capacity expansion positioning DEME to capture further market share and potentially sustain high revenue growth rates.
  
• EBITDA and net profit surged by 28% and 77% respectively in 2024, with EBITDA margins at the high end of the historical guidance range (above 18%), signaling operational leverage, cost control, and a sustained margin improvement trend that may continue to support higher future earnings.
  
• DEME maintains a strong financial position, reversing €512 million in net debt to a €91 million net cash position, combined with impressive free cash flow of €729 million and an increased dividend, allowing for reinvestment, flexibility for capex, and potential resilience against adverse cycles-factors likely to support long-term shareholder value.
  
• Secular and industry tailwinds, such as the accelerating energy transition, governmental focus on renewables, coastal resilience projects, and increased ESG alignment (with 42% of turnover now EU Taxonomy aligned), significantly enhance DEME's long-term revenue streams and margin potential even amidst macro and geopolitical uncertainty.

Valuation

• The assumed bearish price target for DEME Group is €135.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of DEME Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €200.0, and the most bearish reporting a price target of just €135.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €4.3 billion, earnings will come to €278.9 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 7.9%.
• Given the current share price of €131.6, the bearish analyst price target of €135.0 is 2.5% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that the bearish analysts believe on average, the company is fairly priced.
• 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.