Rising Global Demand Will Fuel Deepwater And Offshore Green Projects

Key Takeaways

• Industry-leading project delivery and innovation position SBM Offshore for greater revenue and margin growth than current forecasts anticipate.
  
• Early entry into new markets and regions, along with strong contract structures, enhances long-term diversification and earnings resilience.
  
• Increasing regulatory, market, and industry pressures threaten long-term growth and earnings due to lack of diversification, ESG concerns, and reliance on declining offshore oil and gas projects.

Catalysts

Provides floating production solutions to the offshore energy industry worldwide.

• While analyst consensus highlights the robust FPSO order backlog and project pipeline, this may actually understate future earnings power: SBM Offshore is executing new projects at record pace and efficiency, capturing a disproportionately large share of global deepwater capacity-positioning it to exceed revenue growth forecasts as global production from deepwater surges to over 30 percent by 2030.
  
• Analysts broadly agree the Fast4Ward model improves margin and project delivery, but recurring innovations-proven by the industry-leading installation speed, >99% uptime, and rapid debottlenecking-suggest a structural and sustained uplift in operating margins and free cash generation well beyond current market expectations.
  
• Unlike consensus, the potential for SBM Offshore to move quickly into new large-scale ocean infrastructure markets (such as floating carbon capture, offshore hydrogen, and modular desalination) is accelerating, and the company's technological and operational edge could enable higher-than-expected long-term top-line growth and diversification of earnings.
  
• The strategic expansion into high-growth regions like Suriname, Namibia and Mexico, where SBM Offshore is already an early mover, is creating a first-mover advantage that is likely to secure premium contracts and above-peer returns, fueling better-than-expected backlog replenishment and earnings resilience.
  
• The company's accelerated deleveraging profile, driven by minimal equity requirements in "sale and operate" projects and high-quality take-or-pay contracts with strong inflation protection, could lead to a faster decline in net debt and a step-change in shareholder distributions, driving upside to earnings per share and cash returns.

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 $1.2 billion (and earnings per share of $7.37) by about August 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 28.7x today. This future PE is lower than the current PE for the GB Energy Services industry at 28.7x.
• 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 9.37%, as per the Simply Wall St company report.

SBM Offshore Future Earnings Per Share Growth

Risks

• The accelerating global transition to renewable energy, combined with increasing policy support for non-fossil solutions, is likely to erode long-term demand for new offshore oil and gas production assets, which may cause a decline in SBM Offshore's contract wins and ultimately put pressure on future revenues and backlog growth.
  
• Heightened carbon taxes, stricter emissions regulations, and growing requirements for decarbonization can make traditional offshore oil and gas projects less economically viable, which could lead to reduced new project pipelines or cancellations, directly impacting earnings and cash flow.
  
• Rising stakeholder and investor focus on ESG credentials could limit SBM Offshore's access to capital and increase its cost of equity and debt, constraining the company's ability to finance new projects and affecting net margins due to potentially higher financing costs.
  
• Dependence on a small number of major clients and FPSO projects increases vulnerability to contract delays, cancellations, or client-specific risks, which could result in significant revenue volatility and reduce predictability of earnings.
  
• SBM Offshore's relatively limited diversification into renewable or alternative energy projects compared to competitors risks eroding its long-term relevance as energy markets shift, jeopardizing its ability to sustain revenue growth and impacting its long-term net income prospects.

Valuation

• The assumed bullish price target for SBM Offshore is €34.96, 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 €34.96, and the most bearish reporting a price target of just €23.24.
  
• 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 $1.2 billion, and it would be trading on a PE ratio of 7.4x, assuming you use a discount rate of 9.4%.
  
• Given the current share price of €21.44, the bullish analyst price target of €34.96 is 38.7% 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.