Headquartered in Hamilton, Bermuda, Borr Drilling Limited (BORR) is a global offshore drilling contractor specializing in jack-up drilling rigs for shallow-water operations. It owns, contracts, and operates rigs, catering to a diverse clientele, including integrated oil firms, state-owned national oil companies, and independent players in the oil and gas sector.

During the nine months ended September 30, 2023, BORR witnessed a 43.7% year-over-year surge in Rig operating and maintenance expenses, reaching $260.80 million. This increase was primarily attributed to a rise in both the number of operational rigs and operating days.

Additionally, total financial expenses, net, climbed by $13.8 million to $140.10 million, compared to $126.30 million in the same 2022 period. The escalation was predominantly a consequence of heightened interest expense, amounting to $21.80 million.

This is linked to the recognition of interest on BORR's $250 million Convertible Bonds, $150 million Secured Bonds, and the DNB facility, all issued in the nine months ending September 30, 2023, alongside an increase in average interest rates. Shares of BORR have plummeted 13.9% over the past six months, closing the last trading session at $6.53.

Here are the financial aspects of BORR that could influence its performance in the near term:

Weak Financials

For the fiscal third quarter that ended September 30, 2023, BORR’s operating expenses increased 23% year-over-year to $127.80 million. Its cash outflow from investing activities grew 16.7% from the year-ago value to $23.80 million.

Furthermore, as of September 30, 2023, BORR’s cash and cash equivalents amounted to $94.40 million, compared to $108 million as of December 31, 2022. Moreover, its total liabilities came in at $2.13 billion, up from $2.10 billion as of December 31, 2022.

Mixed Historical Growth

Over the past three years, BORR’s revenue increased at a CAGR of 27.2%. However, its tangible book value and total assets declined at a CAGR of 4.8% and 1.8%, respectively, during the same period.

Higher-than-industry Valuation

In terms of forward non-GAAP P/E, BORR is trading at 87.07x, 790.4% higher than the industry average of 9.78x. Its forward EV/EBITDA of 8.98x is 60.3% higher than the 5.60x industry average. Moreover, the stock’s forward EV/Sales of 4.13x is 99.6% higher than the 2.07x industry average.

Low Profitability

BORR’s trailing-12-month Return On Total Capital (ROTC) of 4.52x is 50.6% lower than the industry average of 9.14x. Moreover, the stock's trailing-12-month asset turnover ratio of 0.22x is 59.6% lower than the 0.55x industry average. Furthermore, its trailing-12-month cash per share of $0.38 compares to the industry average of $0.90.

POWR Ratings Reflect Weak Fundamentals

BORR’s bleak prospects are apparent in its POWR Ratings. The stock has an overall rating of D, translating to Sell in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. BORR has a D grade for Quality, justified by its lower-than-industry profitability. Also, the stock has a D grade for Value, consistent with its stretched valuation.

BORR is ranked #11 in the 15-stock Energy - Drilling industry. Click here to access BORR’s Growth, Stability, Momentum, and Sentiment ratings.

Bottom Line

Given BORR's subpar financial performance in both the third quarter and the preceding nine months, coupled with the company's low profitability and the current heightened level of volatility, it appears judicious to exercise caution and consider refraining from investing in BORR at this juncture.

How Does Borr Drilling Limited (BORR) Stack Up Against Its Peers?

While BORR has an overall grade of D, equating to a Sell rating, you may also check out these other B-rated stocks within the Energy - Drilling industry: Precision Drilling Corporation (PDS) and Superior Drilling Products, Inc. (SDPI). For exploring more B-rated Energy - Drilling stocks, click here.

What To Do Next?

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BORR shares were trading at $6.25 per share on Monday morning, down $0.28 (-4.29%). Year-to-date, BORR has gained 25.75%, versus a 20.18% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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