Recurring Operations And Energy Transition Will Secure Future Resilience

Key Takeaways

• Emphasis on recurring brownfield operations, new technologies, and energy transition services strengthens revenue stability, efficiency, and long-term resilience.
  
• Geographic diversification, long-term contracts, and improved financial flexibility support market expansion and decreased reliance on single markets.
  
• Heavy reliance on declining oilfield services, ESG headwinds, underperformance in growth markets, operational risks, and slow transition threaten Archer's long-term competitiveness and profitability.

Catalysts

Provides various oilfield products and services to the oil and gas industry in Norway, Argentina, the United Kingdom, and internationally.

• Archer's focus on recurring, stable brownfield operations and plug & abandonment (P&A) services positions it to benefit from growing global energy demand and the increasing need for intervention and maintenance of aging infrastructure, driving predictable revenue and resilience in future earnings cycles.
  
• The company's ongoing investments in digital and automated well service technologies-evidenced by R&D spend, the acquisition of Well Connection, and new subsea P&A solutions-are expected to enhance operational efficiency and expand addressable markets, supporting sustained margin improvements and revenue growth.
  
• Archer's steady expansion into energy transition services such as geothermal drilling and decommissioning aligns with the energy industry's gradual shift toward decarbonization, allowing the company to capture new recurring revenue streams and improve long-term earnings resilience.
  
• Strategic geographic diversification and long-term contract wins-such as multi-year P&A contracts with Equinor and Repsol, and international growth (notably in the North Sea, UK, and Gulf of Mexico)-provide Archer with improved revenue visibility and reduce reliance on any single market, supporting more stable future cash flows.
  
• The recent strengthening of Archer's balance sheet, through debt refinancing and strong cash generation, increases its flexibility to pursue strategic acquisitions and invest in growth areas, likely contributing to further revenue expansion and eventual net margin improvement.

Archer Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Archer's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.8% today to 7.4% in 3 years time.
• Analysts expect earnings to reach $106.2 million (and earnings per share of $0.64) by about September 2028, up from $-44.5 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 5.7x on those 2028 earnings, up from -4.9x today. This future PE is lower than the current PE for the GB Energy Services industry at 6.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.21%, as per the Simply Wall St company report.

Archer Future Earnings Per Share Growth

Risks

• Archer's heavy revenue dependence on mature brownfield operations and well abandonment (P&A) activities, while offering stability, exposes the company to long-term structural declines as global decarbonization policies and increased renewable energy adoption reduce oil and gas production, causing potential revenue and market share erosion over time.
  
• The company faces significant operational and profitability risks from sectoral ESG pressure: access to capital and favorable financing could tighten as institutional investors and regulators push for divestment from fossil fuel services, raising future borrowing costs and squeezing net margins.
  
• Relative underperformance in key growth markets, such as Argentina, where land drilling activity has declined by 26% year-over-year and is expected to remain flat for 2025, highlights a vulnerability to regional disruptions and volatility, leading to lower revenue and potential net income headwinds.
  
• The company's capital and operational intensity (evidenced by ongoing restructuring, down-manning, and asset sales in Argentina) exposes Archer to adverse impacts during periods of sectoral weakness, including pressured profitability and inability to consistently achieve earnings growth targets.
  
• While Archer is investing in new technologies and expanding renewables and service lines, the scale and pace of these transitions may lag competitors or market changes-leaving the company exposed to automation and digitization trends that could enable larger, more diversified peers to capture market share and outcompete Archer, thus impacting long-term revenue growth and margins.

Valuation

• The analysts have a consensus price target of NOK40.0 for Archer 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 NOK45.0, and the most bearish reporting a price target of just NOK35.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $106.2 million, and it would be trading on a PE ratio of 5.7x, assuming you use a discount rate of 11.2%.
• Given the current share price of NOK24.15, the analyst price target of NOK40.0 is 39.6% 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.