Scaling Of Remote Fleet And Horizon Platform Will Drive Future Organic Growth And Global Market Expansion

Key Takeaways

• Successful sea trials and deployment plans for new technologies position Reach Subsea for potential revenue growth and improved efficiency in the global market.
  
• Strong project backlog and fleet expansion indicate significant potential for organic growth, enhanced profitability, and operational efficiency improvements.
  
• Continued currency volatility, project delays, and flat order backlog pose risks to Reach Subsea's profitability and revenue growth despite increased revenue.

Catalysts

Provides subsea services in Norway and internationally.

• The successful sea trials and upcoming deployments of the Reach Remote 1 and 2 USVs will enhance Reach Subsea’s capabilities and introduce new technology to global markets, likely driving increased future revenue from expanded operational capacity and efficiency improvements.
  
• The company is expanding its technological offerings with Reach Horizon, a platform for remote operations oversight, which is expected to enhance operational efficiency and could improve net margins by reducing operational costs.
  
• The strong project backlog for 2025, with higher inherent margins than the previous year, indicates potential for increased revenue and improved profitability in the upcoming period.
  
• The introduction and scaling of the Reach Remote fleet, along with future fleet expansions, position the company for significant organic growth, potentially boosting revenue and earning capabilities.
  
• The pilot program for Reach Remote 1, sponsored by major energy firms including Equinor and Total Energies, reflects industry interest and may support future revenue channels through establishing credibility and client trust in newly developed technologies.

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 February 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 7.8x on those 2028 earnings, down from 10.3x today. This future PE is greater than the current PE for the NO Energy Services industry at 7.1x.
• 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 9.94%, as per the Simply Wall St company report.

Reach Subsea Future Earnings Per Share Growth

Risks

• The pretax profit for the fourth quarter decreased significantly compared to the previous year, primarily due to unrealized currency losses, which might affect net margins and earnings adversely if currency volatility continues.
  
• Although revenue increased, the EBIT for the fourth quarter remained the same as the previous year, indicating that higher operational costs and lower margins on reimbursable sales are not translating into higher profitability, impacting earnings.
  
• There were substantial delays in the Reach Remote project, with first pilots being primarily cost-covering rather than profitable, potentially delaying expected revenue streams and affecting future profitability.
  
• The financial results were impacted by an unrealized currency loss, highlighting vulnerabilities from currency fluctuations which could negatively affect financial stability and future earnings if not mitigated.
  
• A flat order backlog year-on-year and higher costs could challenge revenue growth and margins in future quarters if new orders do not materialize as anticipated.

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 7.8x, assuming you use a discount rate of 9.9%.
  
• Given the current share price of NOK7.48, the analyst price target of NOK10.05 is 25.6% 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.