We've long sung the praises of Plexus (POS), the developer of the POS-GRIP proprietary wellhead technology for controlling oil flow and pressure. POS-GRIP offers significant advantages over rival technologies, both in terms of safety and ease of installation, according to its inventor and group chief executive Ben Van Bilderbeek. This view is presumably shared by a who's who of the oil and gas industry judged by Plexus's client roster: BP (BP.), Statoil, Total, Royal Dutch Shell (RDSB), ConocoPhillips, Repsol, Maersk Oil, Lundin Petroleum, Talisman Energy, et al.
- Disruptive technology
- Strong IP status
- New joint venture
- New Python Subsea Wellhead being launched
- Oil price weakness
- Punchy forward rating
In an industry that is surprisingly slow to adopt innovations, POS-GRIP certainly falls under the heading of 'disruptive technology'. And a new "transformational" licensing deal could see a rollout of the group's wellhead equipment across Asia, Brazil, India and the Middle East. Following on from an earlier framework agreement, the group has secured an exclusive deal with Yantai Jereh Oilfield Services - a $6.9bn Chinese oil services provider - to facilitate the rental, sale, and manufacture of Plexus's wellhead equipment.
Under the agreement, Jereh will subscribe for 4.47m new shares in Plexus for £8m, equivalent to around 5 per cent of the enlarged share capital. Plexus will be entitled to a range of royalty percentages from Jereh for the rental and sale of POS-GRIP equipment applications, which have been ascribed stringent intellectual property protections.
Jereh could initially accelerate the process - and related revenues streams - through the purchase of wellhead systems manufactured at Plexus's facilities in Aberdeen. For Plexus, the advantages of the tie-up are manifold, particularly given Jereh's geographic reach, and its manufacturing and fabrication expertise.
The Jereh deal wasn't the only recent pointer to future growth channels. Last month, Plexus announced that its new 'Python Subsea Wellhead' will be launched at the SPE Offshore Europe trade show in September. As BP's shareholders know to their cost: when things go wrong where high pressure, high temperature (HPHT) wells are concerned, they can go horribly wrong. Such extreme drilling conditions are expected to become increasingly commonplace and the use of friction grip POS-GRIP technology should enable operators to quickly restore wellhead integrity in the event of a catastrophic blowout, which could save millions, so there are strong financial incentives for drillers.
According to management, industry spending on subsea work has risen from $7bn in 2000 to $45bn in 2014, and could hit $115bn by 2020. This rate of expansion, coupled with the Jereh deal, offers up a huge potential.
| PLEXUS HOLDINGS (POS) | ||||
|---|---|---|---|---|
| ORD PRICE: | 225.3p | MARKET VALUE: | £201m | |
| TOUCH: | 224-226p | 12-MONTH HIGH: | 290p | LOW: 165p |
| DIVIDEND YIELD: | 0.8% | PE RATIO: | 25 | |
| NET ASSET VALUE: | 41p * | NET DEBT: | 12% | |
| Year to 30 Jun | Turnover (£m) | Pre-tax profit (£m)** | Earnings per share (p)** | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 19.7 | 3.1 | 2.9 | 0.9 |
| 2013 | 25.6 | 4.3 | 3.5 | 1.0 |
| 2014 | 27.0 | 5.4 | 5.8 | 1.1 |
| 2015** | 29.9 | 6.5 | 6.3 | 1.3 |
| 2016** | 38.1 | 9.4 | 9.1 | 1.7 |
| % change | +27 | +45 | +44 | +32 |
Normal market size: 1,500 Matched bargain trading Beta: 0.83 *Includes intangible assets of £12m, or 14p a share **Numis Securities forecasts, adjusted PTP and EPS figures | ||||
