BULL POINTS:
• Patented, superior well head technology
• Booming oil and gas demand
• Expanding the technology's potential applications
• Shares not so expensively rated by sector standards
BEAR POINTS:
• Needs a manufacturing partner
• No dividend
Plexus rents and sells well head technology to major oil and gas companies. Its flagship product is its patented POS-GRIP well head connector, which improves a piece of equipment essential for all oil and gas wells. A well head is the unit that sits on top of an oil or gas well, from which descends the well's tubing and casing. The well head also provides the connection point for the blow-out protector, which guards against uncontrolled blow-outs caused by drilling into unexpected high-pressure zones.
The advantages of POS-GRIP over competing technologies include improved safety, better sealing, longer life and increased reliability. It saves time and cost by allowing components to be passed into the well without needing to remove the blow-out protector.
So with booming oil demand, it's not surprising that Plexus is experiencing strong demand. Explorers are increasingly turning to deeper, more remote prospects, often involving high pressure, high temperature environments where POS-GRIP's properties are particularly advantageous. With the well head market estimated to be worth more than $5bn (£2.53bn) a year, there's plenty of scope for growth.
BP, ExxonMobil and Shell helped fund POS-GRIP's development, and systems have now been employed in more than 120 wells. Other clients include BG, BHP Billiton, ConocoPhillips, Gas de France and StatoilHydro, and the company has a strong pipeline of contracts.
| PLEXUS HOLDINGS (POS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 76p | MARKET VALUE: | £60.9m | |
| TOUCH: | 73-78p | 12M HIGH / LOW: | 76p | 36p |
| DIVIDEND YIELD: | nil | PE RATIO: | 18 | |
| NET ASSET VALUE: | 21p | NET DEBT: | 14% | |
| Year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2005 | 2.64 | 0.23 | 0.76 | nil |
| 2006 | 6.78 | -0.12 | -0.39 | nil |
| 2007 | 10.3 | 1.53 | 1.35 | nil |
| 2008* | 13.1 | 1.70 | 1.50 | nil |
| 2009* | 19.0 | 5.00 | 4.30 | nil |
| % change | +45 | +194 | +187 | - |
Normal market share:1,000 Market makers:3 Beta:0.32 *Brewin Dolphin estimates | ||||
Click for a guide to the terms used in IC results tables
Plexus is expanding the use of POS-GRIP technology into other applications, too, such as deep sea drilling and sub-sea. It is enlarging its rental fleet and considering establishing an operating base in south east Asia to service the region's burgeoning drilling market.
Growth has largely been funded through debt and borrowings are gradually growing. Management would like to expand further into manufacturing, but this would require the financial backing of a partner.
