FPSO Expansion And Decarbonization Initiatives Will Improve Future Prospects

Key Takeaways

• SBM Offshore's focus on high-potential FPSO contracts and Fast4Ward projects aims to boost future revenue and cash flow through sustained deepwater demand.
  
• Investment in partnerships for technologies like carbon capture and offshore wind enhances long-term competitiveness and profitability.
  
• Expanding into the blue economy and new markets poses risks due to capital increases, geopolitical factors, and potential disruptions in revenue and project execution.

Catalysts

Provides floating production solutions to the offshore energy industry worldwide.

• SBM Offshore's strategic focus on expanding its backlog with high potential contracts in the FPSO market and its pipeline of projects such as the Fast4Ward FPSOs aims to capitalize on sustained demand for deepwater production. This is expected to positively impact future revenue growth and cash flow generation.
  
• The company’s commitment to decarbonization and transitioning its operations towards the blue economy, including developing near-zero emission FPSOs, positions it to access new markets and clients focused on sustainability. This could enhance net margins by potentially attracting higher-value contracts.
  
• SBM Offshore's strategy to employ a sale and operate model for its projects allows for accelerated cash flow without equity investment, improving cash flow and potentially increasing earnings per share by optimizing cash returns.
  
• The ongoing investment in and development of strategic partnerships for technologies such as carbon capture and floating offshore wind solutions are expected to drive long-term growth and profitability, enhancing the company’s competitive edge and revenue streams.
  
• The considerable backlog of $35.1 billion and the expected $9.5 billion net cash generation over the next six years highlight strong future cash flows that underpin their capacity for shareholder returns. This visibility in cash flow offers potential upside in earnings forecasts and return on equity.

SBM Offshore Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SBM Offshore's revenue will grow by 9.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 12.3% in 3 years time.
• Analysts expect earnings to reach $769.0 million (and earnings per share of $4.61) by about April 2028, up from $150.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.0 billion in earnings, and the most bearish expecting $576 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.0x on those 2028 earnings, down from 22.4x today. This future PE is lower than the current PE for the GB Energy Services industry at 22.1x.
• 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 9.98%, as per the Simply Wall St company report.

SBM Offshore Future Earnings Per Share Growth

Risks

• SBM Offshore's significant investment in new FPSOs and standardized MPF hulls could result in increased capital expenditures and debt, impacting net margins and overall profitability if market conditions shift unfavorably.
  
• The strategy to pursue new business opportunities in the blue economy, while innovative, carries execution risks and uncertainties in generating anticipated revenue streams, which could affect future earnings.
  
• The company's expansion into markets such as Brazil, Guyana, and Suriname adds geopolitical and regulatory risks that may disrupt operations and influence revenue volatility.
  
• Although the sale and operate model is intended to enhance cash flow, the shift could lead to short-term cash flow volatility and impact net debt levels, particularly if project progress faces delays.
  
• Market reliance on high demand for FPSOs due to sustained oil demand assumes a stable oil price environment; fluctuations or a shift to renewable energy sources faster than anticipated could constrict expected revenue growth.

Valuation

• The analysts have a consensus price target of €24.966 for SBM Offshore 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 €35.0, and the most bearish reporting a price target of just €20.98.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.2 billion, earnings will come to $769.0 million, and it would be trading on a PE ratio of 8.0x, assuming you use a discount rate of 10.0%.
• Given the current share price of €16.93, the analyst price target of €24.97 is 32.2% 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.