ROYA And NEDA Technologies Will Drive Future Prospects Amid MENA Expansion

Key Takeaways

• NESR's expansion and technology rollout in MENA indicate potential revenue growth and increased market share, boosting net margins.
  
• Investments in decarbonization and strengthened financials diversify revenue streams, increasing financial flexibility and potential future earnings.
  
• NESR's dependence on MENA growth, tech investments, and water management scaling faces risks from geopolitical instability, tech delays, competition, and potential debt increase.

Catalysts

Provides oilfield services in the Middle East and North Africa region.

• NESR is expanding in the MENA region with growth in core business areas such as directional drilling and hydraulic fracturing, indicating potential for increased revenue as these services are deployed across more regions.
  
• The rollout of ROYA directional drilling technology and successful trials signal significant growth potential by increasing market share and high-quality revenue from Tier 1 contracts, which could boost both revenue and net margins.
  
• Investments in environmental and decarbonization technologies like NEDA and the Salttech acquisition indicate new revenue streams and diversification with potential high margins through innovations in water and mineral recovery.
  
• NESR’s strengthened balance sheet, with low net debt to EBITDA ratio and efficient cash conversion from operations, enhances financial flexibility for future investments and shareholder returns, implying improved future earnings.
  
• The recent relisting on Nasdaq increases visibility and investor confidence, supporting potential stock revaluation upwards and enhanced earnings through better access to capital markets.

National Energy Services Reunited Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming National Energy Services Reunited's revenue will grow by 8.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.1% today to 10.1% in 3 years time.
• Analysts expect earnings to reach $162.2 million (and earnings per share of $1.7) by about February 2028, up from $51.7 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 11.3x on those 2028 earnings, down from 17.4x today. This future PE is lower than the current PE for the US Energy Services industry at 15.9x.
• Analysts expect the number of shares outstanding to grow by 0.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.01%, as per the Simply Wall St company report.

National Energy Services Reunited Future Earnings Per Share Growth

Risks

• NESR's reliance on growth in the MENA region means any geopolitical instability or economic downturn in the Middle East could negatively impact their revenue and earnings.
  
• The company's significant investments in new technologies and projects, such as the ROYA platform and NEDA, are capital-intensive, and any delays or failures in these ventures to achieve commercial success could impact net margins and profitability.
  
• NESR's growth strategy includes scaling up in the decarbonization and water management areas, which involve long development cycles; unexpected setbacks in scaling up could slow revenue growth.
  
• The competitive landscape in the oilfield services sector, especially in markets like Saudi Arabia, could result in pricing pressure, potentially affecting the company's profit margins.
  
• While the company is reducing debt, any substantial increase in their debt levels to finance continued expansion or CapEx could impact net earnings if not managed carefully.

Valuation

• The analysts have a consensus price target of $14.75 for National Energy Services Reunited 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 $16.0, and the most bearish reporting a price target of just $13.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $162.2 million, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $9.45, the analyst price target of $14.75 is 35.9% 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.