Wood Group (John) - Riders on the Storm

Wood Group (John): Oil service companies are not the in thing at the moment, with the oil price at such depressed levels. E&P companies are reining back capital expenditure and shelving projects left, right and centre. Wood Group’s experience is no different, but it does have a reputation as one of the premium players in its markets. In these, in-line, annual results to 31^st December 2014, revenue was up 7.8% to $7.6bn, underlying pre-tax profits up 10.9% at $414.5m and eps at 99.6c were little changed from 98.6c the year before. Good news for income growth investors was the confirmation of a 25% dividend hike to 27.5c (so nearly four times covered) and a declared intention to post double-digit percentage increases going forward. This ambition is supported by a balance sheet that, having bedded in several acquisitions, shows net debt of $295.7m, “around the lower end of our stated preferred range of 0.5x-1.5x net debt to EBITDA”.

Obviously the oil services industry is expecting 2015 to be bloody, but Wood Group claim  “relative resilience”. At the moment they have 12 months visibility on the PSN Production Services order book, but the engineering businesses order book is at the lower end of a 6-9 month window. This could mean that the current industry slowdown will not fully impact Wood Group in the short term. However, this time lag does give them plenty of room to make any further required adjustments to their cost base. The rub is that forecasts for 2015 and 2016 are fluid. Let’s guess that they make 75c this year, at £:$1.54 that is 48.7p. At the current 683p (sharply up on the day) that is only 14x what may be trough earnings. Let’s make the heroic assumption that they get back to near 100c in 2016. That is 64.9p for a PE of only 10.5x. Even if it takes them until 2017, that recovery path has attractions. Meanwhile an intended minimum 10% annual dividend increase, takes you to at least 33.3c (21.6p) in 2016 for a useful, but not huge, yield of 3.2%. Cautious investors may well want to wait for further clarity on any further oil price recovery, but the share price move tells you that others are braver. (Neil Cumming^, 17^th February 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower