Global Energy Demand And Decarbonization Will Fuel Offshore EPC Expansion

Key Takeaways

• Saipem is poised to outperform market expectations due to accelerating demand for energy transition projects and strong growth in high-margin, de-risked contract portfolios.
  
• Robust operational improvements and strategic alliances position the company to sustain earnings expansion, market share gains, and financial flexibility for future growth initiatives.
  
• Heavy reliance on oil and gas with slow progress in renewables exposes Saipem to industry transition risks, project volatility, higher financing costs, and debt vulnerabilities.

Catalysts

Provides energy and infrastructure solutions worldwide.

• Analyst consensus expects revenue and earnings growth from Saipem's strategic push into energy transition projects, but this likely underestimates the scale of future contract acceleration as global decarbonization efforts and regulatory mandates sharply increase demand for CCUS and biorefinery EPC solutions, potentially delivering step-change growth in backlog and top-line revenues for years to come.
  
• While analysts see improved working capital and contractual risk management driving steady net margin gains, current financials already signal the onset of a powerful operating leverage effect; as legacy projects roll off and a higher-margin, de-risked portfolio dominates, Saipem is set to deliver a rapid structural expansion in EBITDA margins beyond current consensus, boosting earnings re-rating potential.
  
• Saipem's fully booked construction fleet through 2026 and increasing visibility into 2027, along with a €53 billion stable commercial pipeline and robust contract activity in the Middle East and offshore, suggest the company is uniquely positioned to capture outsized share from the accelerating global energy infrastructure buildout, materially de-risking revenue forecasts well beyond 2026.
  
• Strategic alliances with key regional players and recurring contract extensions (like Saudi Aramco's LTA renewal) provide Saipem preferential access to premium, mega-scale oil and gas and offshore wind projects in fast-growth markets, underpinning a durable uplift in both order intake quality and recurring revenue streams.
  
• Saipem's operational and financial transformation-reflected in fast-improving cash flow, investment-grade credit momentum, and efficiency through digitalization and asset-light models-creates optionality for large-scale growth investments, potential shareholder distributions, and enhanced ability to weather industry cycles, supporting a long runway for earnings growth and capital return.

Saipem Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Saipem compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Saipem's revenue will grow by 3.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.2% today to 5.0% in 3 years time.
• The bullish analysts expect earnings to reach €836.1 million (and earnings per share of €0.42) by about July 2028, up from €326.0 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 bullish analyst cohort, the company would need to trade at a PE ratio of 10.8x on those 2028 earnings, down from 14.7x today. This future PE is lower than the current PE for the GB Energy Services industry at 12.6x.
• Analysts expect the number of shares outstanding to decline by 0.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.97%, as per the Simply Wall St company report.

Saipem Future Earnings Per Share Growth

Risks

• Saipem's long-term growth is highly dependent on oil and gas project demand, which faces headwinds from accelerating global energy transition and decarbonization trends, likely reducing its future revenue pipeline as hydrocarbon projects decline.
  
• The company's continued focus on oil and gas services leaves it exposed to investor rotation toward ESG-compliant investments and sustainability-linked financing, which may restrict access to capital and increase financing costs, ultimately putting pressure on net margins and earnings.
  
• Saipem's operating history is marked by weak and volatile margins driven by high project execution risks and historic cost overruns in a competitive EPC market, which could undermine the stability of net income even in periods of strong order intake.
  
• While there is progress in expanding into energy transition activities such as CCUS and biorefineries, the scale of these projects remains small relative to the company's core fossil-fuel operations, potentially limiting the pace and scale of future revenue growth as renewable contracting opportunities remain niche.
  
• High debt levels and the need for ongoing financial discipline make Saipem vulnerable to interest rate increases and refinancing risk, especially if cash flows weaken due to cyclicality in oil and gas spending or if major projects are delayed or canceled due to regulatory, political, or economic instability.

Valuation

• The assumed bullish price target for Saipem is €3.54, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Saipem's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €3.54, and the most bearish reporting a price target of just €2.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €16.7 billion, earnings will come to €836.1 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 10.0%.
• Given the current share price of €2.45, the bullish analyst price target of €3.54 is 30.8% 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.