Development Of Codling Wind Park And Increased Cruise Bookings May Balance Operational Hurdles And Analysts' Skepticism

Key Takeaways

• Renewable segment growth is anticipated from power generation increase and higher electricity prices, driven by high winds and geopolitical issues.
  
• New UK contracts and wind project developments support future revenue and earnings in renewables and offshore wind sectors.
  
• Operational setbacks in wind farms, lower energy prices, low cruise occupancy, interest rate losses, and uncertain project timelines could challenge Bonheur's revenue growth and margins.

Catalysts

Engages in the renewable energy, wind service, and cruise businesses in Norway, Europe, Asia, the Americas, Africa, and Internationally.

• Increased power generation and anticipated higher electricity prices due to high winds and geopolitical tensions are expected to boost revenue for Bonheur's renewables segment.
  
• Winning new power contracts in the UK CfD allocation round and the development of Crystal Rig IV and Windy Standard III are expected to drive future revenue growth in the renewables sector.
  
• The expected increase in cruise bookings by 15% from Q3 last year suggests higher future revenues and improved occupancy rates, which could enhance net margins for the cruise segment.
  
• The successful submission and potential approval of the Codling Wind project consent application could lead to significant future earnings in the offshore wind sector.
  
• Tight market conditions and new contract reservations for Fred. Olsen Windcarrier indicate potential for higher day rates and consequently improved earnings in the wind service segment.

Bonheur Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bonheur's revenue will decrease by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.2% today to 6.2% in 3 years time.
• Analysts expect earnings to reach NOK 852.2 million (and earnings per share of NOK 20.03) by about February 2028, down from NOK 1.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.8x on those 2028 earnings, up from 8.8x today. This future PE is greater than the current PE for the GB Industrials industry at 14.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.98%, as per the Simply Wall St company report.

Bonheur Future Earnings Per Share Growth

Risks

• Bonheur is operating with asset utilization below 100%, with one major wind farm out due to fire and a vessel in the yard at Windcarrier, which could limit revenue generation potential in the near term.
  
• In the Renewable Energy segment, power prices are 25% lower, and despite higher generation, such fluctuations in energy prices could impact net margins and revenue stability.
  
• The Cruise Lines segment has an occupancy of just 77% during peak season, which is below industry standards and could negatively impact revenue and net margins if not improved.
  
• The interest rate fluctuations resulted in significant realized losses on financial instruments, particularly interest rate swaps in renewables, potentially affecting net finance costs adversely.
  
• The planning and consent process for the Codling Wind Park is uncertain, with risks of judicial review, making the timing of future revenue and cash flow from this project uncertain.

Valuation

• The analysts have a consensus price target of NOK345.0 for Bonheur 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 NOK380.0, and the most bearish reporting a price target of just NOK310.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK13.8 billion, earnings will come to NOK852.2 million, and it would be trading on a PE ratio of 20.8x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of NOK242.5, the analyst price target of NOK345.0 is 29.7% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.