ii view: Wood Group sells nuclear business

Wood Group looks to focus on its areas of strength and reduce debt.

First-half results to 30 June 2019

• Revenue down 2.6% to $4.79 billion  
• Adjusted profit (EBITDA) up 31% $384 million
• Interim dividend up 1% to 11.4 US cents
• Net debt excluding leases up 14% to $1.77 billion
• Order book of $9.2 billion up from $9.1 billion in December 2018
• Sale of nuclear business for £250 million ($305 million)
• Full year guidance unchanged

Chief executive Robin Watson said:

"Strong margin improvement and profit growth in the first half was led by activities in energy markets in the eastern hemisphere and our environment and infrastructure operations in North America, together with cost synergies. We also made substantial progress on our non-core asset disposal programme and have agreed the sale of our nuclear business for $305 million, with completion anticipated in Q1 2020. This will result in significant deleveraging and bring us close to our target leverage. With 87% of 2019 revenues delivered or secured we remain confident in our full year outlook and guidance is unchanged. Looking further ahead, we remain well positioned for growth across the energy and built environment markets."

ii round-up:

Wood Group (John) (LSE:WG) designs, modifies, constructs and operates industrial facilities mainly for the oil & gas sector. 

Its expertise stretches from innovative pipeline design to wind turbine and tidal energy. 

It employs around 60,000 people across more than 60 countries. 

The company operates through the four divisions of Asset Solutions in the Americas, Asset Solutions in Europe, Africa, Asia and Australia, Specialist Technical Solutions and Environment and Infrastructure Solutions. 

The agreed sale of its nuclear business for £250 million overshadowed half-year results. If cleared by the competition authority, the disposal will help management achieve its targeted reduction of group debt. 

Increased customer activity in the Middle East and cost cutting helped drive profitability over the period.

An expansion in the order book since year-end 2018 underpinned management's unchanged full-year expectations. 

The share price rose by less than 1% in early UK stock market trading. 

ii view:

With over 40% of the group's revenues coming from the oil & gas industry, business demand is to some degree linked to the volatile oil price. 

The sale of its nuclear business reduces diversification but allows for increased management focus on areas of strength such as oil & gas. 

For investors, a forward price earnings valuation below the three and ten-year averages offers encouragement, while a prospective dividend yield of over 6% (not guaranteed) potentially rewards patient investors. But a 30% plus fall in the share price over the last year should help remind investors of inherent risks. 

Positives: 

• Cost cutting initiatives
• Business disposals allow for greater focus on areas of leadership and strength

Negatives:

• Underlying customer investment can be volatile and uncertain
• Although being targeted by management for reduction, group debt remains a focus 

The average rating of stock market analysts:

Strong hold