Shares in Plexus Holdings (POS) were sent tumbling as the wellhead technology specialist added its name to the wave of profit warnings hitting the broader energy sector. The Aberdeen-based group, which markets its proprietary POS-GRIP wellhead systems, took an absolute battering on Monday, as shares fell 42 per cent on the previous day's closing price - and they're still southbound at the time of writing.
The group revealed that revenues for its December half-year were expected to come in below £7m, compared with £13.5m for the same period a year earlier. It gets worse - second-half revenues are now expected to be down by around 20 per cent on the interim result, an implied 56 per cent fall year on year.
Plexus' heavy reliance on North Sea remits has left the group exposed to a sharp contraction in capital budgets. Nowhere has the prolonged oil price slump been more acutely felt than the UK Continental Shelf (UKCS). An uncompetitive tax regime, coupled with ageing assets and high production costs have hobbled the domestic oil and gas industry - and the dozens of offshore contractors that serve it.
Management had already set about diversifying the group's revenue streams even before it became obvious that Saudi Arabia and its Gulf partners were intent on playing hard ball to preserve market share. The diversification process was given impetus by an exclusive deal, signed last July, with Yantai Jereh Oilfield Services, a heavyweight Chinese oil services provider, which should accelerate the rollout of Plexus' wellhead equipment across Asia. And the day after the Plexus sell-off (the bulk of shares were hived off in the 68p-73p range), the group announced that it had entered into an exclusive licensing agreement with LLC Gusar and CJSC Konar, two Russian oil and gas equipment manufacturers, to undertake the rental, manufacture and servicing of Plexus' jack-up drilling wellhead exploration equipment in the Russian Federation and other former Soviet countries now collectively known as the Commonwealth of Independent States.
Valuations for Plexus, along with those for larger sector stablemate Hunting (HNTG), have been particularly vulnerable as both groups are largely reliant on equipment sales and/or leasing, whereas remits for contractors specialising in lower-margin maintenance functions have held up relatively well. We think both sector constituents have quality offerings, but the fear is they're floundering in uncharted waters.
