Deepwater Projects Will Leverage Anticipated Upcycle In Energy Services

Key Takeaways

• Strategic focus on long-cycle projects and technology-driven services positions Expro for revenue growth and competitive advantage in energy services.
  
• Integration of acquisitions and cost rationalization initiatives aim to enhance margins and operational efficiency, supporting financial performance improvement.
  
• Commodity price pressure and geopolitical uncertainties could impact Expro's revenue, margins, and project timelines, leading to potential setbacks in growth targets.

Catalysts

Engages in the provision of energy services in North and Latin America, Europe and Sub-Saharan Africa, the Middle East and North Africa, and the Asia-Pacific.

• Expro's strategic involvement in long-cycle international and offshore projects, notably in regions like deepwater and subsea well access, positions it to capitalize on the anticipated multiyear upcycle in the energy services sector. This is expected to drive revenue growth as the company benefits from robust project sanctioning activity.
  
• The resolution of pending variation orders related to the Congo Production Solutions project may unlock additional revenue and improve adjusted EBITDA margins, particularly if these orders are resolved favorably soon.
  
• Ongoing innovation and industry recognition in Expro’s technology-driven services, such as the CENTRI-FI control solution, highlight the company’s competitive advantage and potential for revenue growth, as operators look for integrated and efficient solutions.
  
• The integration of recent acquisitions like Coretrax and the ongoing focus on capturing synergies can enhance operating leverage and broader service offerings, leading to improved net margins and potential revenue synergies in new markets.
  
• Initiatives to further rationalize support costs reflect Expro's strategic focus on improving operating leverage and achieving its target of mid-20s adjusted EBITDA margins, which could positively impact earnings as the company scales.

Expro Group Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Expro Group Holdings's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.0% today to 10.6% in 3 years time.
• Analysts expect earnings to reach $220.9 million (and earnings per share of $1.96) by about February 2028, up from $16.5 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 16.1x on those 2028 earnings, down from 93.5x today. This future PE is greater than the current PE for the US Energy Services industry at 15.4x.
• Analysts expect the number of shares outstanding to grow by 6.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.0%, as per the Simply Wall St company report.

Expro Group Holdings Future Earnings Per Share Growth

Risks

• Commodity prices have been under pressure, leading to more cautious discretionary spending by customers, which could impact revenue and delay new projects.
  
• Losses recognized on high-cost projects like the Congo Production Solutions project could negatively affect net margins if similar issues arise in the future.
  
• The potential for a slow start to 2025 due to customer project delays, particularly in North America, could impact near-term earnings and revenue growth targets.
  
• External geopolitical uncertainties, such as tensions in the Middle East and Ukraine, create volatility in the oil markets, affecting commodity prices and Expro’s revenue forecasts.
  
• Anticipated modest declines in oil prices due to potential inventory builds and production increases by OPEC+ could pressure revenue and margin expansion if demand does not recover as expected.

Valuation

• The analysts have a consensus price target of $19.833 for Expro Group Holdings 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 $24.0, and the most bearish reporting a price target of just $17.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $220.9 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $13.11, the analyst price target of $19.83 is 33.9% 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.