ii view: Wood Group looks to shine a light on value

Shares are up 40% since pandemic lows but down almost 40% year-to-date and still heading the wrong way. We assess prospects. 

Second-half trading update and strategic review

Guidance:

• Expects full year revenue of $6.4 billion (£4.8 billion), down from $6.6 billion (£4.95 billion)

ii round-up:

Global engineering and consulting company Wood Group (LSE:WG.) today announced a strategic review of its built environment business as it lowered its full-year revenue and adjusted profit margin expectations. 

Full-year revenue is now expected to come in at around $6.4 billion compared to a previous estimate of $6.6 billion given delays for a solar project. The underlying profit margin is expected to fall to between 8.5% and 8.7% from a prior 8.7% to 8.9% forecast.  

Wood Group shares fell by more than 4% in UK trading, leaving them down by close to 40% year-to-date. The company provides engineering and consulting services to the energy industry and others across more than 60 countries. Its expertise stretches from innovative pipeline design to wind turbine and tidal energy.

Its built environment business offers consulting and engineering solutions that address environmental risks, increase climate resilience and help to build more sustainable infrastructure. It operates across government, transportation, water, industrial, energy and mining markets. 

For the 2021 financial year, the business under review is expected to account for $1.3 billion of gross revenue within Wood's Consulting business unit. It has around 7,000 staff, largely located in the US and Canada.

The strategic review will consider a range of options to best unlock value for shareholders. It will also assess how to best take advantage of the positive trends and investment opportunities in energy transition and industrial decarbonisation, where it is already a global leader.

The review is taking place against improving momentum in many of its markets following the challenging market conditions created by the pandemic. Management expects improved revenue and earnings in the second half of 2021 relative to the first half.

A full-year trading update is scheduled for 13 January.

ii view:

The Aberdeen headquartered company operates via the three divisions of projects, consulting and operations. Its capital projects business offers construction and engineering to all aspects of conventional energy, process & chemicals and renewable energy & power. Its multi-sector consulting business provides some 12,000 consultants to the energy and the build industries, while the operations division provides maintenance and asset optimisation services. In 2020, the US generated almost half of overall group revenues. 

For investors, the overhang from the pandemic remains. First-half revenue fell 23%, hit by reduced customer expenditure under pandemic uncertainty and business sales. And the dividend, a former attraction, is still suspended. More favourably, some improvement across its markets is being seen, with rises in energy prices likely to aid customer confidence in proceeding with projects. A strategic review of its built environment business aims to unlock shareholder value, but some caution remains sensible.

Positives: 

• Winning alternative energy contracts
• Targeting cost savings 

Negatives:

• Ongoing pandemic uncertainty
• Underlying customer investment can be volatile and uncertain

The average rating of stock market analysts:

Hold