Johan Castberg FPSO And Tender Pipeline To Drive Future Success

Key Takeaways

• Executing large-scale projects and new technology investments increase revenue growth and operational efficiency, improving margins and competitiveness.
  
• Engagement in CCS projects and a strong tender pipeline diversify markets, ensuring robust future revenue prospects and financial health.
  
• Ongoing challenges with legacy projects, budget issues, and market volatility risk impacting revenue, profitability, and financial stability if not promptly addressed.

Catalysts

Provides solutions, products, systems, and services to the oil and gas industry in Norway, the United States, Brazil, the United Kingdom, Malaysia, Angola, Brunei, Canada, India, and internationally.

• Aker Solutions is executing several large-scale projects, such as the Aker BP portfolio and the Johan Castberg FPSO, which are expected to drive substantial revenue growth, notably with the forecasted revenue increase of over 40% for 2024 due to secured backlogs and high market activity.
  
• The company's investment in new technologies, like the fully robotic production line at Verdal, enhances operational efficiency with significant improvements in production speed and quality, which is likely to positively impact net margins and competitiveness in future project tendering.
  
• Engagement in carbon capture and storage (CCS) projects, including the Northern Lights CO2 storage terminal, positions Aker Solutions in a growing market segment with potential for increased revenues and diversification away from traditional oil and gas markets.
  
• The growth in the tender pipeline, now at NOK 82 billion, across traditional oil and gas, renewables, and decarbonization efforts provides strong future revenue prospects as the company is well-positioned to secure new contracts in expanding markets.
  
• The recent announcement of an extraordinary dividend and strong balance sheet strategy indicates that Aker Solutions is focused on maintaining financial health, which supports sustainable capital allocation and potential future earnings per share growth as the working capital normalizes.

Aker Solutions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aker Solutions's revenue will decrease by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.8% today to 4.1% in 3 years time.
• Analysts expect earnings to reach NOK 1.6 billion (and earnings per share of NOK 3.25) by about February 2028, up 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 14.3x on those 2028 earnings, up from 12.6x 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 decline by 1.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.97%, as per the Simply Wall St company report.

Aker Solutions Future Earnings Per Share Growth

Risks

• Challenges in the legacy renewable projects continue to drag on profit margins, potentially impacting net margins if not resolved promptly.
  
• The Norwegian VPSO refurbishment activities are noted to be over budget and behind schedule, which could harm revenue and profitability if similar issues arise in future projects.
  
• The company faces volatile energy prices and geopolitical instability, which could affect revenue streams and overall financial stability.
  
• Negative impacts from SLB share price developments and associated exchange rates have already affected net financial items, which could continue to pose risks to net income.
  
• Despite solid performance in existing projects, high reliance on substantial order backlogs and specific tender opportunities creates risks if these don't materialize, potentially impacting future revenue and earnings.

Valuation

• The analysts have a consensus price target of NOK38.333 for Aker Solutions 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 NOK60.0, and the most bearish reporting a price target of just NOK27.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK37.4 billion, earnings will come to NOK1.6 billion, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of NOK31.5, the analyst price target of NOK38.33 is 17.8% 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.