Strong Demand And Limited Supply In Offshore Helicopters Will Drive Future Success In Offshore Energy Services

Key Takeaways

• Tight supply and strong demand trends in offshore helicopters likely lead to improved margins and enhanced future profitability for Bristow Group.
  
• Positive performance in Africa and sustained demand in Offshore Energy Services suggest continued revenue growth and a strong earnings profile.
  
• Supply chain challenges and high operating expenses risk net margin pressure, while dependence on contracts and capital expenditure may affect future earnings growth and liquidity.

Catalysts

Provides vertical flight solutions.

• The tight supply of offshore helicopters combined with strong demand trends is expected to lead to significant margin improvements, enhancing future profitability. This suggests an increase in net margins and earnings.
  
• Increased utilization and rates in Africa, as well as strong performance in this region, indicate a positive outlook for revenue growth in the upcoming years.
  
• The multiyear up cycle in the Offshore Energy Services sector, along with a tight supply dynamic of heavy and super medium helicopter models, supports the expectation of continued revenue growth.
  
• The expected positive cash flows in the latter half of 2025, driven by a disciplined capital allocation strategy and strong demand in core areas, imply future enhancement in free cash flow and a robust earnings profile.
  
• The continued operationalization of new SAR contracts and subsequent completion of necessary capital investments will allow Bristow to redirect cash flows towards growth and shareholder returns, positively impacting liquidity and earnings potential.

Bristow Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bristow Group's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.0% today to 8.7% in 3 years time.
• Analysts expect earnings to reach $158.2 million (and earnings per share of $5.16) by about December 2027, up from $55.1 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 12.3x on those 2027 earnings, down from 17.9x today. This future PE is lower than the current PE for the US Energy Services industry at 15.6x.
• Analysts expect the number of shares outstanding to grow by 2.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.29%, as per the Simply Wall St company report.

Bristow Group Future Earnings Per Share Growth

Risks

• Persistent supply chain challenges affecting the availability of helicopter parts, such as components for the S-92, could impact operational efficiency and increase repair costs, which might negatively affect net margins.
  
• Increased operating expenses, particularly due to higher operating personnel costs and fluctuations in repairs and maintenance, could pressure profitability and reduce net margins.
  
• Dependence on contract-based revenue, especially from government services and cyclical offshore energy markets, poses a risk if demand decreases in these sectors, potentially reducing future earnings.
  
• Fluctuating foreign exchange rates and non-recurring benefits from accounting adjustments can create variability and uncertainty in reported earnings and revenues.
  
• Elevated capital expenditures due to investments in UK and Irish Coast Guard contracts increase financial leverage, which may impact liquidity and constrain future earnings growth if cash flow projections are not met.

Valuation

• The analysts have a consensus price target of $48.5 for Bristow Group 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 2027, revenues will be $1.8 billion, earnings will come to $158.2 million, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 10.3%.
• Given the current share price of $34.34, the analyst's price target of $48.5 is 29.2% 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.