Northern Ocean Ltd. (OB:NOL) Could Be Less Than A Year Away From Profitability

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. On 31 December 2019, the kr478m market-cap company posted a loss of US$8.2m for its most recent financial year. As path to profitability is the topic on Northern Ocean's investors mind, we've decided to gauge market sentiment. 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 the 2 industry analysts covering Northern Ocean, the consensus is that breakeven is near. They anticipate the company to incur a final loss in 2019, before generating positive profits of US$8.2m in 2020. 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 58% is expected, which is rather optimistic! 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, bear in mind that generally an energy business has lumpy cash flows which are contingent on the natural resource and stage at which the company is operating. 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. Typically, debt shouldn’t exceed 40% of your equity, which in Northern Ocean's case is 84%. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.

Next Steps:

There are too many aspects of Northern Ocean to cover in one brief article, but the key fundamentals for the company can all be found in one place – Northern Ocean's company page on Simply Wall St. We've also put together a list of essential aspects you should look at:

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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