Global Energy Transition And Digital Automation Will Expand Subsea Services

Key Takeaways

• Strategic expansion into high-growth, high-barrier markets positions Archer for leadership, margin expansion, and elevated earnings well above analyst expectations.
  
• Investments in digitalization and global platform relationships enable Archer to secure premium contracts, unlock new revenue streams, and achieve superior cash flow resilience.
  
• Shrinking fossil fuel markets, regulatory pressures, client concentration, high fixed costs, and slow tech adoption threaten Archer's revenue stability and future earnings growth.

Catalysts

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

• Analyst consensus expects that Archer's recent strategic acquisition and business integration will drive meaningful EBITDA growth, but this view likely understates potential: Archer's move into the high-barrier subsea plug & abandonment market, with first-mover advantage and cutting-edge technology, positions the company for outsized multi-year margin expansion and a leadership role in a globally expanding segment, supporting an accelerated rise in earnings and return on capital.
  
• While analysts broadly agree that Archer's net margin should benefit from a pipeline of recurring contracts and cost synergies, this overlooks the accelerating shift by global E&P majors toward long-term outsourcing of brownfield and decommissioning projects; Archer's established platform relationships, integrated service model, and proven ability to industrialize workstreams can deliver step-change improvements in contract size, duration, and profitability, leading to a structurally higher revenue and cash flow base than consensus appreciates.
  
• The durability of brownfield and late-life oilfield activity, combined with regulatory drivers for well integrity and abandonment, ensures multi-decade demand for Archer's core offerings, and as a market leader in Northern Europe and pioneer in emerging subsea P&A, Archer is poised to secure outsized contract share as this market doubles over the next 25 years, driving sustained premium revenue growth irrespective of short-term oil price fluctuations.
  
• Archer's ongoing investment in digital technologies and proprietary well intervention solutions enables the company to capture value from the wave of automation and digitalization in the energy sector, unlocking new revenue streams, enabling premium pricing, and providing a significant gross margin uplift as customers prioritize safety, efficiency, and environmental compliance.
  
• With global energy demand growth in emerging markets and new export infrastructure in Argentina set to unlock a surge in drilling activity, Archer is uniquely positioned for rapid growth in high-return markets like Vaca Muerta, while recent cost optimization in Argentina's legacy operations ensures that future revenue growth there translates to disproportionately higher EBITDA and cash conversion, supporting dividend growth and re-rating of the equity.

Archer Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Archer compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Archer's revenue will grow by 9.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -3.9% today to 5.6% in 3 years time.
• The bullish analysts expect earnings to reach $82.8 million (and earnings per share of $0.92) by about July 2028, up from $-44.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 8.1x on those 2028 earnings, up from -4.8x today. This future PE is about the same as the current PE for the GB Energy Services industry at 8.1x.
• 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 11.32%, as per the Simply Wall St company report.

Archer Future Earnings Per Share Growth

Risks

• The accelerating global transition to renewable energy and structural decline in oil and gas demand will gradually reduce Archer's core addressable market, posing a long-term risk to revenues as well as future earnings.
  
• Increasing regulatory scrutiny and stricter environmental standards globally could drive up compliance costs, create project delays, and compress Archer's net margins over time, especially as decommissioning and P&A rules become more demanding.
  
• Ongoing reliance on a concentrated customer base, particularly oil majors like Equinor and key regional customers in Norway, the UK, and Argentina, exposes Archer to revenue volatility if these clients reduce capital expenditures or switch to competitors, directly impacting top-line stability.
  
• High operational leverage and a significant fixed cost structure make Archer vulnerable to industry downturns or sudden declines in client activity, which could rapidly compress net margins and threaten consistent dividend payouts in periods of weak market activity.
  
• Slow adoption or underinvestment in cutting-edge digital technologies and automation, compared to larger oilfield service peers, could lead to loss of market share in critical business lines and constrain Archer's future earnings growth as customers seek more advanced, efficient solutions.

Valuation

• The assumed bullish price target for Archer is NOK45.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Archer's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• 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 NOK34.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $82.8 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 11.3%.
  
• Given the current share price of NOK23.75, the bullish analyst price target of NOK45.0 is 47.2% 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.