Loss-Making Northern Ocean Ltd. (OB:NOL) Set To Breakeven

We feel now is a pretty good time to analyse Northern Ocean Ltd.'s (OB:NOL) business as it appears the company may be on the cusp of a considerable accomplishment. Northern Ocean Ltd., together with its subsidiaries, provides offshore contract drilling services for the oil and gas industry worldwide. The kr463m market-cap company announced a latest loss of US$37m on 31 December 2020 for its most recent financial year result. The most pressing concern for investors is Northern Ocean's path to profitability – when will it breakeven? In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

View our latest analysis for Northern Ocean

According to some industry analysts covering Northern Ocean, breakeven is near. 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 a year from now or less! We calculated the rate at which the company must grow to meet the consensus forecasts predicting breakeven within 12 months. It turns out an average annual growth rate of 54% is expected, 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, though, keep in mind that typically energy companies, depending on the stage of operation and resource produced, have irregular periods of cash flow. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.

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 92%. Note that a higher debt obligation increases the risk around 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 key aspects 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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