The good news is that this write-up is not going to be about Billiton (BLT) - the world's largest miner - whose Tuesday morning results in Australia were worthy but dull. Far more interesting were the numbers from Wood Group (WG.) and Polymetal (POLY). I chose Wood Group nearly nine months ago now and the shares - unlike my other pick, the now taken-over GKN - have been a bit up and down so far this year...
Clearly the oil services space is not easy - you only need to look at the still muted prospective spending comments by the oil majors over recent weeks - however I see a clear need for catch-up spend (confirmed in comments from Wood Group especially in areas such as downstream and chemicals) and, even more importantly, Wood Group has a lot of self-help. The latter is centred on the company's takeover of Amec Foster Wheeler which, I believe, history will show is going to be a well-timed acquisition near the lows of sector sentiment. Comments about synergies being not only at the top end of expectations but that the three year synergy target has been raised (from at least $170 million to at least $210 million). That is good news justifying not only the deal but also a helpful contribution to the company's deleveraging following the deal.
It is still hopeful that net debt to ebitda ratios will fall to around x1.5 from a current x2.4 multiple over the next 18 months. Cash conversion was good. Of course there is a wiggle with the observation that there was a 'loss for the period impacted by non cash amortisation charges of $125m and exceptional costs of $101m including anticipated costs to deliver synergies and a non cash impairment charge relating to EthosEnergy'. These will wash through (often with gaining synergies/putting businesses together initially you have to spend to save). I talked about the share price starting with an 8 by the end of this year when I made the tip and this remains my view. Still a buy here.
Meanwhile there have been a series of positive announcements by Russia-focused gold miner Polymetal (POLY) over the last couple of days. I first wrote HERE and have subsequently written about the company underpromising and overdelivering. This has continued this week with news not only of a good ramp-up at its new POX (pressure oxidation) facility which will help process gold concentrate from China but a good set of numbers. Production growth (11% - all in gold) with all-in costs at $893 an ounce is a positive combination and the company remains on track to hit its full year targets on both measures. Debt did edge up during the first half, hurt slightly by seasonal working capital timing, but with the Kyzyl mine shifting to a full ramp-up I think the balance sheet strengthens further (in line with management guidance) to well below the current x2 net debt:ebitda metric by the end of the year and further next year.
Maybe surprisingly for a Russian gold company, dividend realities over recent years have been good and it is not unreasonable to expect a 5% yield again from this name. Of course naturally there will be a Russian discount given the diplomatic backdrop but I am happy to be long and strong in both this sector and this specific name. Who ever said large cap resource names were boring?
Filed under: Wood Group, Polymetal, Woodford, Andalas, HaloSource, Headlam, TomWinnifrith.com
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