Interactive Investor

ii view: Wood Group ups profit hopes given green energy wins

Targeting growth areas such as hydrogen and carbon capture along with more traditional oil and gas projects. We assess prospects.

22nd August 2023 16:23

by Keith Bowman from interactive investor

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First-half results to 30 June

  • Revenues up 16% to $3 billion (£2.4 billion)
  • Adjusted profit (EBITDA) up 8.5% to $202 million (£160 million)
  • Net debt excluding leases of $654 million (£516 million), down 63% year-over-year

Guidance:

Chief executive Ken Gilmartin said:When we announced our growth strategy in November last year, we set out a plan for Wood to deliver on its significant potential, and I am delighted that our results show the clear progress we are making. 

As we look ahead, we are confident that our actions, the business model we have implemented and the market growth opportunities to which we have aligned, support the momentum we are building in our business.”

ii round-up:

Energy industry-focused engineer and consultant John Wood Group (LSE:WG.) today upped its full-year profit hopes, with its order book growing 5% since the start of the year to $6 billion, and helped along by increased green energy project demand.

First-half revenues rose 16% to $3 billion pushing adjusted profit up 8.5% to $202 million, beating City forecasts nearer to $196 million.

Shares for the FTSE 250 company, which earlier in the year saw US private equity firm Apollo walk away from a $1.7 billion takeover, rose by more than 4% in UK trading. That leaves them up around 15% year-to-date, ahead of a 4% gain for rival Petrofac (LSE:PFC). Customers Shell (LSE:SHEL) and BP (LSE:BP.) are both little changed, while the 250 index is down 4% year-to-date. 

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

Over $600 million of sustainable or green energy demand fed into revenues for the period, up 20% year-over-year and accounting for a fifth of total group sales.  

Overall contract wins included a new agreement with Shell to help it with decarbonisation and asset life-extension projects, along with a $50 million life sciences engineering contract for GSK (LSE:GSK) in the US. 

The specialist engineer also announced the pending departure of its current chief financial officer with the search for a replacement now under way. 

A third-quarter trading update is scheduled for 9 November. 

ii view:

Started in 1982 and headquartered in Aberdeen, Wood Group expertise today stretches from innovative oil and gas pipeline design to wind turbine and tidal energy projects. Its biggest slice of sales comes from the US, with the UK and Canada providing other major markets. 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 and therefore required infrastructure is not to be forgotten. Net debt is down year-over-year, although up from late December’s $393 million, hindered by a tax bill for its 2022 $1.8 billion business sale, while the dividend has been halted since the second half of 2019. 

More favourably, a refreshed strategy is being pursued with business for sustainable energy projects now being won. Contract legacy issues have been addressed, while its universe of potential customers now includes life science and mineral companies. 

On balance, and despite some scope for caution, current strategic progress and an analyst consensus estimate of fair value of over 200p per share gives room for longer-term optimism.  

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:

Strong hold

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