Borr Drilling Ltd (NYSE: BORR) is positioned for exceptional returns in 2025, as per Thiago Mordehachvili – the chief investment officer of London-based Granular Capital.
He recommends investing in the offshore drilling vessels company as more than 30% of the global jack-up fleet is close to retirement.
Borr has a fleet of 24 modern jack-up rigs at writing.
Borr stock has been a big disappointment for its shareholders this year but the hedge fund continues to see potential in it to as much as quadruple in 2025.
Why is Granular Capital bullish on Borr stock?
Borr drives its business primarily from oil and gas giants that rent its vessels to undertake drilling operations in shallow waters.
Granular Capital is bullish on the company’s share price also because ESG concerns have weighed on construction of new jack-up rigs over the past decade.
“The supply is all but gone. There have been no new orders over the past decade. The banks are out of the drilling business due to ESG concerns,” Mordehachvili said last week at the Sohn Conference.
Plus, the current economic environment discourages building new jack-up rigs that makes the existing fleet more valuable, he added.
Borr shares are well positioned for better cash flow
Thiago Mordehachvili likes Borr shares as the cost of renting its offshore drilling vessels is set to increase meaningfully even if new rigs are built at about $300 million apiece.
Higher rental costs could mean a significant boost to the cash flow for this oil and gas supply chain firm.
Last week, Saudi Aramco suspended its contract with Borr Drilling for at least a year.
Still, Mordehachvili remains positive as the company has reasonable visibility in terms of revenue growth over the next two years after securing contract extensions from the likes of Valeura, Fieldwood Energy, and even Exxon Mobil.
Note that Borr stock is scheduled to delist from the Oslo Stock Exchange by the end of 2024.
Green energy transition is not a threat for Borr
Borr Drilling Ltd was a bit more subdued as it shared its outlook for the future on the earnings call on November 7th.
Still, Granular Capital remains constructive as it doesn’t see the shift to cleaner energy resources as a threat for Borr shares in the near or medium term.
“We like shallow water because those are basically brown fields, and much cleaner hydrocarbons than elsewhere, also cheaper to extract. They’ll be the last oil to be drilled. So, we’re talking the bottom of the cost curve,” according to Thiago Mordehachvili.
The hedge fund is not the only one that’s bullish on Borr stock.
Arctic Securities analyst Sebastian Grindheim also sees upside in it to $7.50, indicating potential for about a 100% gain from current levels.
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