Expansion Into Renewables And New Projects Will Reduce Reliance On Offshore Volatility

Key Takeaways

• Expansion across renewable channels like onshore wind and solar diversifies revenue and reduces dependence on the volatile offshore market.
  
• Integration of Ross Offshore and strategic agreements bolster revenue stability, optimize costs, and aim for improved EBIT margins.
  
• Over-reliance on acquisitions for growth, cost management challenges, and market volatility threaten ABL's revenue stability and profitability.

Catalysts

An investment holding company, provides energy, and marine and engineering consultancy services to renewables, maritime, and oil and gas industries worldwide.

• The positive momentum in the offshore wind sector, coupled with new project wins in Korea, Germany, and the U.K., positions ABL Group to capitalize on increased utilization rates, which should bolster future revenue growth.
  
• The strategic expansion into onshore wind, solar, and additional renewable channels is beginning to yield results, potentially increasing revenue and lowering reliance on the turbulent offshore wind market.
  
• The integration of Ross Offshore, despite initially neutral EBIT effects, aims to reach AGR's level of performance, which could drive EBIT margin improvements as synergies are realized.
  
• Ongoing investment and cost optimization in OWC are poised to enhance margins as markets recover, particularly in offshore wind, contributing to targeted EBIT margin growth of 6.5%.
  
• Long-term framework agreements, such as those with Equinor, offer a stable revenue stream and enhanced earnings visibility, supporting overall earnings stability and growth.

ABL Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ABL Group's revenue will grow by 15.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.1% today to 5.8% in 3 years time.
• Analysts expect earnings to reach $26.4 million (and earnings per share of $0.12) by about February 2028, up from $3.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.8x on those 2028 earnings, down from 37.5x today. This future PE is greater than the current PE for the GB Energy Services industry at 6.5x.
• Analysts expect the number of shares outstanding to grow by 1.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.93%, as per the Simply Wall St company report.

ABL Group Future Earnings Per Share Growth

Risks

• The reliance on Ross Offshore for revenue growth is notable, as most of the recent increase in revenue was due to this acquisition, suggesting organic growth in other segments was flat, which may impact future revenue stability if acquisition-driven growth stalls.
  
• The OWC segment, focusing on offshore wind, is currently experiencing negative margins and decreased utilization rates. While there are attempts to stabilize, there is ongoing market volatility which could risk the overall net margins and lead to prolonged periods of underperformance.
  
• The rise in operating costs by 30% amid a revenue increase of only 23% highlights the challenges in maintaining profitability and controlling costs, potentially impacting net earnings if not managed effectively.
  
• A decrease in ABL segment utilization rates while adding more staff suggests a mismatch in workforce management and demand that could lead to strained profitability unless market conditions improve significantly to absorb the additional capacity.
  
• The volatile nature of Longitude’s business, with fluctuating margins, could pose risks to stable earnings, making it difficult to predict financial outcomes quarter-on-quarter as this segment remains a small but variable contributor to overall results.

Valuation

• The analysts have a consensus price target of NOK13.015 for ABL Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $453.1 million, earnings will come to $26.4 million, and it would be trading on a PE ratio of 7.8x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of NOK9.92, the analyst price target of NOK13.01 is 23.8% 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.