The Energy Services Industry's PE Ratio May Rise, But Regional Risks Could Impact Future Performance

Key Takeaways

• Heavy reliance on specific regions and market volatility could adversely impact revenue growth, consistency, and asset utilization amid increasing competition and limited opportunities.

Catalysts

Owns and operates offshore support vessels for the offshore energy service industry and offshore renewables market.

.

Sea1 Offshore Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sea1 Offshore's revenue will decrease by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 75.4% today to 31.0% in 3 years time.
• Analysts expect earnings to reach $92.3 million (and earnings per share of $0.6) by about February 2028, down from $269.6 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $72.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.6x on those 2028 earnings, up from 1.1x today. This future PE is greater than the current PE for the NO Energy Services industry at 6.5x.
• Analysts expect the number of shares outstanding to decline 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 10.61%, as per the Simply Wall St company report.

Sea1 Offshore Future Earnings Per Share Growth

Risks

• The reduction in the number of vessels owned by the company compared to the previous year may impact future revenue growth potential as fewer assets can generate income.
  
• The company's heavy reliance on contracts from specific regions, such as South America and Australia, could pose risks if economic or political instability affects those areas, potentially impacting revenue and earnings consistency.
  
• The volatile North Sea market, which experienced less drilling activity than expected, could continue to underperform and affect future revenue and utilization rates of anchor handlers and PSVs.
  
• Increasing competition between renewable projects and traditional oil and gas campaigns may pressure day rates and utilization in the Subsea segment, potentially impacting the net margins and overall earnings.
  
• The layup of specialized vessels like the JOIDES Resolution, with limited market opportunities, suggests a risk of underutilization of assets, which could negatively impact revenue and asset efficiency.

Valuation

• The analysts have a consensus price target of NOK41.156 for Sea1 Offshore 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 $297.3 million, earnings will come to $92.3 million, and it would be trading on a PE ratio of 6.6x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of NOK22.4, the analyst price target of NOK41.16 is 45.6% higher. Despite analysts expecting the underlying buisness 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.