Petrobras Contract Will Drive Stability While Facing Headwinds

Key Takeaways

• Strategic contracts and operational improvements in AKOFS Offshore and HMH could enhance financial stability and future revenue growth.
  
• Asset divestment and strategic distributions indicate increased shareholder value and stronger future financial performance.
  
• Global trade uncertainties, macroeconomic instability, and supply chain disruptions pose significant risks to Akastor's profitability and revenue stability.

Catalysts

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

• The completion of AKOFS Santos's negotiations with Petrobras for a 4-year contract starting July 2026 is a potential future revenue driver for Akastor, enhancing stability in earnings and cash flow for the coming years.
  
• The refinancing and subsequent operational improvements in the AKOFS Offshore sector, such as a new contract for the AKOFS Seafarer vessel, suggest better future financial performance, which could positively impact margins and profitability.
  
• Akastor’s strategy to distribute a significant portion of the net proceeds from the sale of DDW Offshore's Skandi Peregrino as dividends indicates a potential increase in shareholder value and future earnings per share through strategic asset divestment.
  
• NES Fircroft’s continued revenue growth despite market challenges, combined with strategic M&As, is expected to support a stronger financial performance, potentially enhancing revenue and margin stability.
  
• HMH's efforts to expand through organic growth and value-adding acquisitions are poised to strengthen its market position, leading to potential future revenue and earnings growth once the logistical and macroeconomic challenges are mitigated.

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 12.2% in 3 years.
• If Akastor's profit margin were to converge on the industry average, you could expect earnings to reach NOK 28.2 million (and earnings per share of NOK 0.11) by about May 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 255.4x 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 8.6x.
• 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 7.01%, as per the Simply Wall St company report.

Akastor Future Earnings Per Share Growth

Risks

• The uncertainty in global trade and potential impacts of tariffs could negatively affect EBITDA by 3% to 6%, posing a risk to future profitability. (Financial Impact: Net Margins, Earnings)
  
• Recessionary data from the U.S. and volatile oil prices could create a bearish macroeconomic environment, potentially affecting revenue through reduced demand or hesitancy in customer spending. (Financial Impact: Revenue)
  
• Concerns about ongoing and potential new supply chain disruptions could lead to increased costs and operational inefficiencies, affecting margins and earnings negatively. (Financial Impact: Net Margins, Earnings)
  
• The delay and uncertainty in contract negotiations, such as the unsigned Petrobras contract, create risks for revenue stability and future cash flow projections. (Financial Impact: Revenue, Cash Flow)
  
• Currency effects have already led to reduced book equity value, and continued volatility could further impact financial results unfavorably in terms of net profit reporting. (Financial Impact: Equity Value, Earnings)

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 NOK28.2 million, and it would be trading on a PE ratio of 255.4x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of NOK11.18, the analyst price target of NOK22.0 is 49.2% 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.