Ramp-Up Of NFE And NFS Projects And Green Hydrogen Ventures Will Drive Earnings Growth

Key Takeaways

• Strategic diversification into green hydrogen and ammonia projects enhances future revenue visibility and could boost future earnings.
  
• Focus on higher-margin ethylene and lower-emission technologies targets improved net margins and earnings growth.
  
• Economic and geopolitical uncertainties, competition, and regulatory shifts could delay projects, compress margins, and affect Technip Energies' revenue and profitability.

Catalysts

Operates as an engineering and technology company for the energy transition in Europe, Russia, the Asia Pacific, Africa, the Middle East, and the Americas.

• The ramp-up of major projects like NFE and NFS in Qatar, with significant workforce mobilization expected to peak in 2025, indicates sustained growth in Project Delivery revenues and potential operational efficiencies. This supports higher revenue projections and stable margins.
  
• Recent strategic diversification into green hydrogen and ammonia projects, such as the Rely joint venture and FEED awards like Rovuma LNG, enhances future backlog and revenue visibility, potentially boosting future earnings.
  
• The focus on expanding proprietary licensed ethylene technologies and lower-emission technologies demonstrates an ongoing strategic effort to target higher-margin business segments, potentially improving net margins.
  
• Successful execution and progress on new initiatives in the Transitioning to a Portfolio Services (TPS) segment, including the recycling plant in Frankfurt and carbon capture projects, could drive higher TPS revenues and margins, contributing positively to overall earnings growth.
  
• The company's consistent return of cash to shareholders, amounting to €170 million through dividends and buybacks, along with expected growth in earnings per share from strong financial performance, indicates a commitment to enhancing shareholder value, which could positively impact the stock valuation.

Technip Energies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Technip Energies's revenue will grow by 8.8% annually over the next 3 years.
• Analysts are assuming Technip Energies's profit margins will remain the same at 5.7% over the next 3 years.
• Analysts expect earnings to reach €470.4 million (and earnings per share of €2.62) by about December 2027, up from €362.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €401 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.0x on those 2027 earnings, up from 12.4x today. This future PE is lower than the current PE for the FR Energy Services industry at 15.6x.
• Analysts expect the number of shares outstanding to grow by 1.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.85%, as per the Simply Wall St company report.

Technip Energies Future Earnings Per Share Growth

Risks

• Economic and geopolitical uncertainties, particularly in the U.S. and China, could lead to delays or cancellations of large projects, impacting future revenue and backlog growth.
  
• Increasing competition and execution risks in emerging sectors like LNG and green energy projects could compress margins and affect profitability.
  
• Rising interest rates and potential changes in tax regulations, such as the French surtax, could increase financial costs and reduce net earnings.
  
• Currency fluctuations and inflationary pressures on material and labor costs could erode profit margins if not adequately hedged or managed.
  
• Potential regulatory changes, including a shift in policies related to the energy transition or carbon emissions, might affect project timelines and thus impact projected revenue and earnings growth.

Valuation

• The analysts have a consensus price target of €29.38 for Technip Energies 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 €37.0, and the most bearish reporting a price target of just €25.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €8.3 billion, earnings will come to €470.4 million, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of €25.96, the analyst's price target of €29.38 is 11.7% 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.