Future Expansion Into Green Hydrogen And CCUS Will Diversify Income Sources

Key Takeaways

• Continued expansion in greenfield and brownfield projects aims to boost network capacity and revenue, focusing on areas like Duqm and Sur.
  
• Diversifying into hydrogen transportation and carbon capture positions the company to tap into emerging energy sectors and revenue streams.
  
• Reliance on non-recurring revenue and execution risks in growth strategies pose challenges to future revenue stability and earnings amidst increasing costs and regulatory influences.

Catalysts

Acquires, constructs, operates, maintains, repairs, and augments gas transportation pipelines in Oman.

• OQ Gas Networks SAOG is expanding their asset base through growth projects, both greenfield and brownfield, which could increase their revenue by growing the network's capacity, particularly focusing on Southern areas like Duqm and Sur.
  
• As the national leader in hydrogen transportation, OQGN is working on developing infrastructure for a green hydrogen ecosystem, potentially boosting future revenue by entering new energy sectors and diversifying income sources.
  
• Their involvement in carbon capture and storage (CCUS) projects, such as linking emissions sources to storage sites, positions them to potentially increase revenue by playing a critical role in emerging industrial needs for emissions management.
  
• The company is actively mitigating current revenue shortfalls in the construction sector, with strategies aimed at improving future profitability and asset growth, which could increase earnings as initiatives progress or are completed.
  
• Adjustments to financial processes, such as accounting changes in employee costs and the potential for capturing benefits from changing finance costs, indicate efforts to improve net margins and profitability despite current regulatory constraints.

OQ Gas Networks SAOG Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OQ Gas Networks SAOG's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.9% today to 45.9% in 3 years time.
• Analysts expect earnings to reach OMR 80.7 million (and earnings per share of OMR 0.02) by about February 2028, up from OMR 48.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.0x on those 2028 earnings, up from 11.7x today. This future PE is greater than the current PE for the OM Oil and Gas industry at 11.7x.
• 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 24.85%, as per the Simply Wall St company report.

OQ Gas Networks SAOG Future Earnings Per Share Growth

Risks

• The company's revenue decreased by 11% due to a one-off financial event related to the termination of a hedge, indicating reliance on non-recurring revenue streams which may impact future revenue stability.
  
• There is a noted decrease in construction revenue, leading to financial pressure from potentially delayed or reduced infrastructure projects, which are critical for maintaining and growing operational capacity and revenue.
  
• Employee-related costs have increased due to a change in accounting practices, potentially impacting net margins if not managed effectively as they represent a significant part of operational expenditure.
  
• The regulatory environment, particularly changes to the allowed Weighted Average Cost of Capital (WACC) and price controls, can significantly influence profitability and cash flows for the company, which remains a risk to earnings stability.
  
• The company faces execution risks with its growth strategies and projects in alternative energy and carbon capture, as these initiatives are still in early phases and could encounter technical, regulatory, or market challenges, impacting future revenue streams.

Valuation

• The analysts have a consensus price target of OMR0.163 for OQ Gas Networks SAOG based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of OMR0.18, and the most bearish reporting a price target of just OMR0.15.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be OMR175.7 million, earnings will come to OMR80.7 million, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 24.8%.
  
• Given the current share price of OMR0.13, the analyst price target of OMR0.16 is 18.9% 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.