Wood Group - a recovery buy?

Letter to FCA from Tom Winnifrith HERE – Full enquiry into Dev Clever, Mark Horrocks and Chris Akers & possible market abuse

Wood Group (WG.) announced half-year results including “operating profit of $65.6m (June 2019: $138.8m)…considers it prudent not to pay a 2020 interim dividend” but the shares look to be at a depressed valuation and the announcement also included “recent signs of stabilisation… expect good cash generation and a further reduction in net debt in the second half. Well placed for medium term growth as markets recover and the energy transition gathers pace”. That is with the group an engineering and consultancy provider to energy markets noting it is moving with those markets – the interims noting upstream and midstream oil & gas now representing c35% of activity (H1 2019: c40%), with chemicals & downstream (c25%), renewables and other energy (c25%) and the built environment (c15%).

Read from Chris Bailey HERE: Barratt Developments? After the YTD volatility I say 'meh'

Chief Executive Robin Watson has more than 35 years’ engineering and industry experience and joined in 2010 having worked for Petrofac and Mobil Oil in the UK and internationally. His remuneration in 2019 totalled £1.69 million (£0.75 million salary), with 351,436 shares held. Chief Financial Officer David Kemp joined in 2013 having had executive roles at Trap Oil Group, Technip, Simmons & Company International and Hess Corporation. His remuneration in 2019 totalled £1 million (£0.48 million salary) with 81,576 shares held. Chair Roy Franklin has more than 46 years experience as a senior executive in the oil & gas industry and he has extensive experience in chairing boards of listed companies. His remuneration in 2019 totalled £0.14 million, with 15,000 shares held. We rate this management team highly. In tough circumstances, it is doing all the right things.

Ariana Resources – cracking news from Arzu South. Read from Nigel Somerville HERE

After net finance expense, tax and non-controlling interests, there was a six months ended 30^th June 2020 $14.9 million attributable loss on revenue -11.5% on a like-for-like basis at just over $4 billion. Excluding exceptionals, it was an $18.2 million profit and there was a net $59.5 million generated from operating activities and then $48.2 million of interest paid. The balance sheet showed cash of $661.9 million and the group emphasised “net debt excluding leases reduced significantly to $1.22bn at 30 June 2020 (30 June 2019: $1.77bn and 31 December 2019: $1.42bn), benefitting from disposal proceeds and steps taken to protect cashflow”. Total current assets were $2.88 billion (-$1.86 billion from six months previously), with current liabilities $3.11 billion (-$1.86 billion) and non-current liabilities $2.90 billion (-0.12 billion). The group notes “uncertainty arising from Covid-19 and oil price volatility” though also “>$200m of overhead cost reductions from actions completed in H1” and “undrawn facilities $1.627bn” and its diversifying markets exposure looks to also mitigate. There is also regulatory risk – for example, the results also including; “Discussions concerning possible resolutions of the investigations by the authorities in the US, Brazil and Scotland progressed to the point where the Group believes that it is likely to be able to settle the relevant matters with these authorities at an aggregate cost of approximately $46m. This amount continues to be reflected as a provision in the financial statements as described in note 11. The Group could also face further potential civil and criminal consequences in relation to the investigation by the SFO”.

Tom Winnifrith & Zak Mir cartoon - Supply @ ME Capital HERE

The group also noted “order book at 30 June $7.0bn (down 16.4% on June 2019 on a like for like basis)”, but also “$3.1bn of order book due to be delivered in H2 2020, giving higher than typical visibility: c90% of forecast revenue delivered or secured at this point in 2019… Focused… to deliver full year EBITDA margins at the 2019 level of 8.6%”. The shares are down from end-2019 levels of around 400p to a current 213.5p offer price, capitalising the group at around £1.5 billion. With even around $300 million of adjusted EBITDA (bullsh*t earnings, but something the market tends to take note of) in the troubled first half, we look for gradual trading recovery to see the shares up towards 300p again.

This first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece this week click HERE

Filed under: Wood Group, Mark Horrocks, Chris Akers, Barratt Developments, Ariana, Supply@ME Capital

2020-09-02 13:56:19

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