USV Deployment And Horizon Platform Will Expand Service Offerings

Key Takeaways

• Expansion of uncrewed vessels and strategic market entry could significantly boost future revenue and diversify income streams.
  
• Technological advancements and a strong backlog with higher margins could enhance operational efficiencies and improve net margins.
  
• Delays in major projects and flat order backlogs suggest potential challenges in revenue growth and profitability amid currency losses and cost coverage focus.

Catalysts

Provides subsea services in Norway and internationally.

• The anticipated scale-up of the Reach Remote fleet and increased utilization of uncrewed surface vessels (USVs) are likely to boost future revenue due to expanded service capabilities and access to new markets.
  
• The solid backlog of NOK 1.2 billion with higher inherent margins compared to the previous year may lead to improved future net margins.
  
• Technological advancements, such as the Reach Horizon platform for remote operations, might increase operational efficiencies, leading to better earnings.
  
• Investments in new environmentally sustainable vessels like the Agalas Eidesvik Newbuild expected in 2026 could expand service offerings and enhance long-term revenue prospects.
  
• Strategic expansion into new geographical markets and sectors, such as renewable energy, could diversify income streams and drive revenue growth.

Reach Subsea Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Reach Subsea's revenue will grow by 9.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.6% today to 15.1% in 3 years time.
• Analysts expect earnings to reach NOK 542.6 million (and earnings per share of NOK 1.66) by about May 2028, up from NOK 205.4 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 8.7x on those 2028 earnings, down from 10.7x today. This future PE is greater than the current PE for the NO Energy Services industry at 8.6x.
• Analysts expect the number of shares outstanding to grow by 4.01% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.27%, as per the Simply Wall St company report.

Reach Subsea Future Earnings Per Share Growth

Risks

• The company's financial results include an unrealized currency loss due to multinational charter party commitments, which might impact net margins and earnings.
  
• Despite revenue growth, the EBIT for the fourth quarter remained flat year-over-year, indicating potential pressure on profitability and net margins.
  
• The order backlog is flat year-over-year, which might imply challenges in securing new contracts and could impact future revenue growth.
  
• The Reach Remote project has experienced substantial delays, potentially affecting revenue recognition from these projects and increasing operational costs.
  
• The pilot program for Reach Remote is more focused on cost coverage rather than profitability, meaning it might not immediately contribute to earnings, impacting short-term financial performance.

Valuation

• The analysts have a consensus price target of NOK10.053 for Reach Subsea 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 NOK3.6 billion, earnings will come to NOK542.6 million, and it would be trading on a PE ratio of 8.7x, assuming you use a discount rate of 8.3%.
• Given the current share price of NOK6.74, the analyst price target of NOK10.05 is 33.0% 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.