Record Contract Backlog And Subsea Demand Will Drive Strong Offshore Upside

Catalysts

About Sea1 Offshore

Sea1 Offshore operates a global fleet of advanced offshore support and subsea vessels serving oil and gas and offshore energy projects.

What are the underlying business or industry changes driving this perspective?

• Record firm contract backlog of $743 million and a further $599 million in options, with 2025 and 2026 already fully covered for PSV and Subsea fleets, underpins high visibility on future revenue growth and supports more stable earnings.
• Subsea fleet, which accounts for 79 percent of backlog, is leveraged to structurally strong demand from conventional subsea EPC activity and offshore energy projects, positioning Sea1 Offshore for sustained high utilization and expanding EBITDA margins.
• Four high end, fuel efficient offshore energy support vessels under construction, designed to serve both oil and gas and renewable markets, should command premium day rates once contracted, driving incremental revenue and improving net margins as they enter the fleet.
• Global footprint and ability to reposition vessels to the most attractive basins, including Brazil, Australia and Canada, support consistently high utilization such as the recent 93 percent level, which enhances operating leverage and earnings power over the cycle.
• Strong balance sheet with a 52 percent equity ratio, $113 million cash, and an undrawn $100 million revolving credit facility provides capacity to fund growth and secure long term contracts, enabling accretive fleet deployment and supporting higher long term returns on equity and earnings.

Assumptions

This narrative explores a more optimistic perspective on Sea1 Offshore compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Sea1 Offshore's revenue will grow by 1.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 37.7% today to 19.0% in 3 years time.
• The bullish analysts expect earnings to reach $53.3 million (and earnings per share of $0.34) by about December 2028, down from $102.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $31.4 million.
• 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 12.4x on those 2028 earnings, up from 3.5x today. This future PE is greater than the current PE for the NO Energy Services industry at 6.3x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.68%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Prolonged weakness in the North Sea Anchor Handler market due to project delays, early rig terminations and low activity in the U.K. sector could persist longer than expected. This would pressure day rates and utilization for a sizable portion of the fleet and weigh on segment revenue and overall earnings.
• The company is increasing leverage to finance 4 new offshore energy support vessels while still lacking firm contracts. Any delay in securing 2 to 5 year charters, or lower than expected day rates when they enter service, would reduce the return on this capex cycle and compress net margins and future cash flows.
• A downward trend in oil prices and potential deferral of offshore investment into at least early 2026 could slow subsea and construction support activity. This could erode the advantage of the current record backlog over time and ultimately soften renewal terms, impacting long term revenue visibility and EBITDA margins.
• Recent and ongoing vessel sales, lay ups and shorter contract durations in parts of the fleet, particularly older or more specialized units like the scientific core drilling vessel, highlight structural risk that some assets may face obsolescence or idle time. This would cap utilization and increase depreciation and operating costs relative to revenue, diluting earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Sea1 Offshore is NOK36.02, which represents up to two standard deviations above the consensus price target of NOK30.35. This valuation is based on what can be assumed as the expectations of Sea1 Offshore'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 NOK36.02, and the most bearish reporting a price target of just NOK25.01.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $281.0 million, earnings will come to $53.3 million, and it would be trading on a PE ratio of 12.4x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of NOK23.55, the analyst price target of NOK36.02 is 34.6% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.