Shelf Drilling, Ltd.’s (OB:SHLF) Profit Outlook

Shelf Drilling, Ltd.’s (OB:SHLF): Shelf Drilling, Ltd., through its subsidiaries, operates as a shallow water offshore drilling contractor in the Middle East, South East Asia, India, West Africa, and the Mediterranean. The øre5.1b market-cap company announced a latest loss of -US$145.8m on 31 December 2018 for its most recent financial year result. The most pressing concern for investors is SHLF’s path to profitability – when will it breakeven? I’ve put together a brief outline of industry analyst expectations for SHLF, its year of breakeven and its implied growth rate.

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View our latest analysis for Shelf Drilling

Consensus from the 3 Energy Services analysts is SHLF is on the verge of breakeven. They expect the company to post a final loss in 2019, before turning a profit of US$1.2m in 2020. SHLF is therefore projected to breakeven around a couple of months from now! How fast will SHLF have to grow each year in order to reach the breakeven point by 2020? Working backwards from analyst estimates, it turns out that they expect the company to grow 103% year-on-year, on average, which signals high confidence from analysts. Should the business grow at a slower rate, it will become profitable at a later date than expected.

OB:SHLF Past and Future Earnings, May 16th 2019
OB:SHLF Past and Future Earnings, May 16th 2019

Given this is a high-level overview, I won’t go into details of SHLF’s upcoming projects, but, keep in mind that typically oil and gas companies, depending on the stage of operation and resource produced, have irregular periods of cash flow. This means that a high growth rate is not unusual, especially if the company is currently in an investment period.

One thing I would like to bring into light with SHLF is its debt-to-equity ratio of 150%. Typically, debt shouldn’t exceed 40% of your equity, and SHLF has considerably exceeded this. 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 SHLF to cover in one brief article, but the key fundamentals for the company can all be found in one place – SHLF’s company page on Simply Wall St. I’ve also put together a list of relevant factors you should further examine:

  1. Valuation: What is SHLF 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 SHLF 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 Shelf Drilling’s board and the CEO’s back ground.
  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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.