Interactive Investor

ii view: Wood Group results boosted by green energy wins

It's been a real rollercoaster for the energy sector engineer over the past few years, but these results have been well received. Buy, sell, or hold?

12th January 2024 11:16

Keith Bowman from interactive investor

Full-year trading update to 31 December

  • Revenues up 9% to around $6 billion (£4.7 billion)
  • Adjusted profit (EBITDA) up 9% to $425 million (£332 million)
  • Order book up 4% to $6.1 billion ($4.8 billion)
  • Net debt excluding leases of $680 million, up from $653 million in late June

Guidance:

  • Continues to expect positive free cash flow in 2024

Chief executive Ken Gilmartin said:

“We are now one year into our strategic growth journey and our results continue to show clear progress. We have delivered strong revenue and EBITDA growth, improved our underlying cash generation, grown our order book, and continue to see an acceleration in the proportion of sustainable solutions within our pipeline.”

ii round-up:

Energy industry focused engineer and consultant John Wood Group (LSE:WG.) today flagged expectation for above-forecast profits, with orders increasingly coming from green energy projects.

Driven by a 9% increase in full-year 2023 revenues to around $6 billion, adjusted profit (EBITDA) is now expected to come in at about $425 million, up from management’s previous estimate of $420 million. 

Shares in the FTSE 250 company, which in 2023 saw US private equity firm Apollo walk away from a $1.7 billion takeover deal, rose by more than 5% in UK trading. That follows a 27% increase in its share price over 2023 compared to a near halving for rival Petrofac Ltd (LSE:PFC). Customers Shell (LSE:SHEL) and TotalEnergies SE (EURONEXT:TTE) gained by 10% and 5% respectively last year. 

Relatively new head Ken Gilmartin in late 2022 detailed a renewed company strategy including plans to target likely growth areas such as hydrogen and carbon capture. 

Recent contract wins included support for a major offshore clean power project in Germany, engineering work for a green hydrogen project in Spain, along with helping BP (LSE:BP.) with its Murlach North Sea development. This helped beef up Wood’s order book to $6.1 billion at year-end from $5.9 billion in September. 

Group central costs came in at $75 million, and management continues to expect positive free cash flow for the year ahead. 

Full-year results are scheduled for 26 March. 

ii view:

Founded in 1982 and employing over 30,000 people, Wood Group’s expertise today stretches from oil and gas pipeline design to wind turbine and tidal energy projects. Geographically, the USA generates its biggest slug of sales, with other contributors including Canada, the UK, and Saudi Arabia. Its renewed strategy also includes a focus on lower risk and reimbursable work. 

For investors, the uncertain economic outlook casts a shadow over energy demand, which can have a negative impact on required infrastructure. Geopolitical tensions and a possible escalation of Israel’s war to the wider Middle East could disrupt operations. Net debt has also recently risen, while the dividend payment has been suspended since 2019. 

On the upside, a refreshed strategy is now being pursued, with business for sustainable energy projects now being won. Wood enjoys diversity of both geography and business type, contract legacy issues have been addressed, while its universe of potential customers now includes life science companies such as GSK and mineral companies. 

For now, and despite clear risks such as Middle East tensions, current strategic progress and a consensus analyst estimate of fair value of just over 200p per share, are likely to keep more speculative investors interested.  

Positives: 

  • Pursuing alternative energy contracts
  • Targeting cost savings 

Negatives:

  • Dividend suspended
  • Underlying customer investment can be volatile and uncertain

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.