Kentz poised for further growth

Kentz provides specialist engineering, construction and technical services to the oil and gas, power, mining and infrastructure sectors. And, as the International Energy Agency expects global energy demand to grow 1.6 per cent per year between 2007 and 2030, with energy supply infrastructure investment of over $1,000bn (£695bn) a year expected to meet this demand, Kentz looks well placed. The group's strategy, client base, order book and strong balance sheet leave it positioned to continue delivering robust growth, despite the global economic downturn. Investment demand is split approximately equally between power generation and oil and gas, which are both areas of strength for Kentz.

The robust Middle East remains Kentz's key geographical market, representing 63 per cent of 2008's revenue. Although other regions are also showing significant growth - Brazil, for instance, made significant offshore oil discoveries during 2008, while large gas projects in Alaska aim to support US domestic energy demand. With several core clients involved in both of these developments, Kentz is well positioned to benefit. The group also expects potential from the liquefied natural gas sector, particularly in the Pacific rim where several major clients are assessing opportunities.

Reflecting those global opportunities, Kentz is reorganising itself into global business units. These are designed to improve service delivery, particularly in remote locations where development activity is expected to accelerate and where Kentz can add greatest value. The group has also been looking for an acquisition to offer services to the offshore market - especially floating production platforms, where Kentz sees considerable future potential. However, despite discussions with a number of parties, the company has so far been unable to conclude a deal.

Kentz remains comparatively well insulated against the global downturn and the recent oil price decline - even though there remains a risk that this could become a bigger concern in the future. After all, its key Middle East market boasts some of the lowest production costs in the world and that allows companies to invest and make profits when the oil price is low. Accordingly, Kentz has not really suffered many downturn-related project cancellations - some have been delayed, however, but several of these are due to re-start after input costs fell.

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The group boasts a core blue chip client base of major international and national oil companies. During 2008, the group generated 30 per cent of its revenue from major players such as Shell, ExxonMobil, BP and Chevron. A further 18 per cent came from national oil companies, including Saudi Aramco, Kuwait Oil Company and Qatar Petroleum. Unlike smaller independent oil plays, these companies are able to take a longer-term view, aren't particularly constrained by capital availability and have generally maintained their capital expenditure in Kentz's core markets.

Meanwhile, the group's backlog - the measure of current contracts not yet completed and new orders - increased 68 per cent to over $1bn during the course of 2008. Since then, Kentz has received orders for new projects, as well as letters of intent in excess of $200m - these should be converted into backlog within two months. Further prospects on which the group is bidding exceed $2.15bn, with decisions on awards expected within the next six months.

The order book provides strong visibility on revenues. Approximately $520m of backlog will be completed during 2009, underpinning 75 per cent of forecast revenue for the year. Moreover, $115m of the group's hefty cash pile comprises the group's own funds - not customer pre-payments. That financial strength will support large contracts and provides finance for acquisitions.