Analysts Expect Northern Ocean Ltd. (OB:NOL) To Breakeven Soon

Northern Ocean Ltd. (OB:NOL) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. Northern Ocean Ltd. provides offshore contract drilling services for the oil and gas industry worldwide. With the latest financial year loss of US$8.2m and a trailing-twelve-month loss of US$36m, the kr660m market-cap company amplified its loss by moving further away from its breakeven target. Many investors are wondering about the rate at which Northern Ocean will turn a profit, with the big question being “when will the company breakeven?” We've put together a brief outline of industry analyst expectations for the company, its year of breakeven and its implied growth rate.

Check out our latest analysis for Northern Ocean

Northern Ocean is bordering on breakeven, according to the 2 Norwegian Energy Services analysts. They expect the company to post a final loss in 2020, before turning a profit of US$22m in 2021. The company is therefore projected to breakeven around 12 months from now or less. At what rate will the company have to grow in order to realise the consensus estimates forecasting breakeven in under 12 months? Using a line of best fit, we calculated an average annual growth rate of 59%, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

Underlying developments driving Northern Ocean's growth isn’t the focus of this broad overview, but, take into account that generally an energy business has lumpy cash flows which are contingent on the natural resource and stage at which the company is operating. So, a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

One thing we would like to bring into light with Northern Ocean is its relatively high level of debt. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in Northern Ocean's case is 93%. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Northern Ocean, so if you are interested in understanding the company at a deeper level, take a look at Northern Ocean's company page on Simply Wall St. We've also put together a list of pertinent factors you should further research:

1. Valuation: What is Northern Ocean worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Northern Ocean is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Northern Ocean’s board and the CEO’s background.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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