Global Energy Demand Will Power Offshore FPSO Expansion

Key Takeaways

• SBM Offshore's innovations in low-emission FPSOs and digital asset management position it to capture premium contracts and drive sustained margin and revenue growth.
  
• Strategic expansion into offshore renewables and standardized production solutions could diversify growth opportunities and accelerate its emergence as a key industry supplier.
  
• Heavy dependence on oil-related projects and slow diversification expose SBM Offshore to regulatory risks, market contraction, financing challenges, and volatile profitability amid global energy transition trends.

Catalysts

Provides floating production solutions to the offshore energy industry worldwide.

• Analyst consensus expects revenue growth from a strong backlog, but with SBM Offshore set to bring large Fast4Ward FPSOs online-representing 12% of global deepwater production by 2025 and rapidly expanding capacity in the Atlantic basin-the company's revenue trajectory could materially overshoot market expectations as it becomes a dominant supplier for global oil majors' critical projects.
  
• While analysts broadly agree that decarbonization and low-emission FPSOs will attract premium contracts and expand margins, the company's near zero emission FPSO and blue ammonia floating production initiatives suggest SBM Offshore could not just win more contracts but redefine the premium end of the market, structurally increasing net margins and accessing entirely new revenue streams ahead of peers.
  
• Rapid digitalization and SBM Offshore's deployment of digital platform services for asset management are poised to drive recurring high-margin service revenues, optimize operational uptime, and unlock further efficiencies, delivering sustained margin expansion and new long-term earnings growth levers.
  
• With global energy demand set to climb and emerging market oil and gas projects requiring more complex and efficient production solutions, SBM Offshore's standardized MPF hull investments and yard partnerships drastically lower delivery risk and time-to-market, potentially accelerating order intake and advancing revenue recognition relative to consensus expectations.
  
• The ongoing transition towards offshore renewables and the company's proactive expansion into floating wind, CO2 injection, and power barge markets through strategic partnerships could rapidly diversify SBM Offshore's addressable market, unlocking multiple new growth vectors and supplementing long-term revenue and EBITDA.

SBM Offshore Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on SBM Offshore compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming SBM Offshore's revenue will grow by 17.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.1% today to 14.8% in 3 years time.
• The bullish analysts expect earnings to reach $1.1 billion (and earnings per share of $7.24) by about July 2028, up from $150.0 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 7.4x on those 2028 earnings, down from 30.4x today. This future PE is lower than the current PE for the GB Energy Services industry at 30.5x.
• Analysts expect the number of shares outstanding to decline by 2.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.14%, as per the Simply Wall St company report.

SBM Offshore Future Earnings Per Share Growth

Risks

• Intensifying global energy transition initiatives and regulatory pressure toward renewable energy threaten to divert both capital and long-term demand away from the oil and gas sector, directly reducing SBM Offshore's addressable market and future potential for increasing its revenue and backlog.
  
• The forecasted stagnation or decline in global oil demand, due to transport electrification, alternative fuels, and improved energy efficiency, may limit the number of new FPSO projects coming to market, dampening SBM Offshore's growth prospects and impacting both its future revenue visibility and earnings potential.
  
• Heavy reliance on a relatively small number of large, complex FPSO contracts introduces significant asset concentration and project execution risk; any operational setbacks, cost overruns, or client payment defaults on these major projects could sharply impact overall profitability and lead to volatile net margins.
  
• The oil and gas sector's growing challenges in attracting ESG-compliant investment combined with institutional divestment trends are likely to raise SBM Offshore's financing costs or restrict access to capital over time, thus pressuring its ability to fund new projects, lowering future net earnings, and potentially constraining shareholder returns.
  
• Despite ambitions to diversify and decarbonize, SBM Offshore remains primarily dependent on FPSO projects, with only slow progress evident in renewables and emerging blue economy solutions; this lack of diversification leaves the company more vulnerable to oil sector cyclicality and long-term structural revenue declines if the energy transition accelerates.

Valuation

• The assumed bullish price target for SBM Offshore is €34.47, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of SBM Offshore'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 €34.47, and the most bearish reporting a price target of just €23.34.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $7.8 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 7.4x, assuming you use a discount rate of 9.1%.
• Given the current share price of €22.48, the bullish analyst price target of €34.47 is 34.8% 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.