IPO And Offshore Deals Will Shape Future Outcomes Amid Challenges

Key Takeaways

• Strong EBITDA growth and potential public listing for HMH suggest enhanced future earnings and liquidity opportunities.
  
• Strategic moves in offshore contracts and equity stakes indicate positive market conditions and potential earnings stability for Akastor.
  
• Uncertain market conditions and legacy contracts challenge Akastor's revenue growth, profitability, and strategic financial maneuvers, impacting investor value and overall equity.

Catalysts

Operates as an oilfield services investment company in Norway and internationally.

• The strong EBITDA growth of HMH, up 27% year-on-year, alongside maintaining its updated S-1 filing with the SEC, hints at a potential upcoming liquidity event, such as a public listing, that could significantly enhance future earnings.
  
• The extension of AKOFS Offshore's contract with Equinor by three years, which adds approximately $300 million to the backlog, indicates potential for increased future revenues and earnings stability.
  
• Positive cash flow generation efforts, including inventory reductions and aggressive accounts receivable management, improve HMH’s operational efficiency and could contribute to enhanced net margins and earnings.
  
• Strategic ownership adjustments in AKOFS Offshore, with Akastor increasing its equity stake to 66.7%, suggest a belief in improved market conditions for subsea services, potentially improving revenue and net margins through enhanced value creation.
  
• DDW Offshore's significant backlog increase and all three vessels being in operation in Australia provide visibility for revenue growth and stable earnings, laying groundwork for strategic decisions to maximize investment value.

Akastor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Akastor's revenue will decrease by 36.9% annually over the next 3 years.
• Analysts are not forecasting that Akastor will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Akastor's profit margin will increase from 176.0% to the average GB Energy Services industry of 12.8% in 3 years.
• If Akastor's profit margin were to converge on the industry average, you could expect earnings to reach NOK 29.7 million (and earnings per share of NOK 0.11) by about April 2028, down from NOK 1.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 242.7x on those 2028 earnings, up from 1.9x today. This future PE is greater than the current PE for the GB Energy Services industry at 8.2x.
• Analysts expect the number of shares outstanding to decline by 0.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.02%, as per the Simply Wall St company report.

Akastor Future Earnings Per Share Growth

Risks

• The timing of HMH's potential IPO is highly dependent on market conditions, and the sentiment indicates uncertainty in achieving liquidity, which could impact future earnings and investor value.
  
• AKOFS Offshore is affected by legacy contracts taken in unfavorable markets, which can dampen current revenue streams and delay profitability as the company transitions to healthier contracts.
  
• The decrease in spares revenue in HMH indicates restrained customer spending due to lower utilization, potentially impacting near-term revenue growth and financial stability.
  
• DDW Offshore's net debt position, despite recently improving cash flows, suggests financial constraints that could hinder strategic financial maneuvers and growth opportunities, affecting net margins and earnings.
  
• The oil sector faces challenging conditions affecting IPO sentiment and secondary market transactions, potentially delaying Akastor's strategic goals and impacting overall stakeholder equity and returns.

Valuation

• The analysts have a consensus price target of NOK22.0 for Akastor 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 NOK231.8 million, earnings will come to NOK29.7 million, and it would be trading on a PE ratio of 242.7x, assuming you use a discount rate of 7.0%.
• Given the current share price of NOK11.16, the analyst price target of NOK22.0 is 49.3% 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.