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John Wood's payout sweetens a bitter pill

The oil services group has some testing times ahead despite Brent crude's rehabilitation
February 21, 2017

Although crude oil prices appear to have stabilised, it will take some time before capital expenditure budgets retrace significantly. In the meantime, oil services operators such as John Wood Group (WG.) will need to contend with an increasingly competitive pricing environment and a patchy outlook across its business segments.

IC TIP: Hold at 479p

Those pricing pressures are evident in a 60 basis point reduction in adjusted margins, which fed through to a 23 per cent fall in full-year earnings before interest, tax and amortisation to $363m (£290m). Management expects further margin compression through 2017, although remedial measures, including an 18 per cent cut in the global headcount, contributed to a $96m reduction in overheads. The group also revealed a cash conversion rate of 68 per cent, against 119 per cent in 2015, as some heavyweight clients decided to double their payment regiment from 30 to 60 days.

Earnings were held in check, partly as a result of $89m in exceptional costs linked to its EthosEnergy joint venture and the reorganisation of the group's core business, although the group announced another 10 per cent hike in the dividend and committed to its progressive policy there.

Credit Suisse analysts are guiding for cash profits of $415m for the December year-end, leading to EPS of 65¢, rising to $461m and 74¢ in 2018.

JOHN WOOD (WG.)
ORD PRICE:749pMARKET VALUE:£2.85bn
TOUCH:748-749p12-MONTH HIGH:909pLOW: 570p
DIVIDEND YIELD:3.6%PE RATIO:125
NET ASSET VALUE:576¢*NET DEBT:15%

Year to 31 DecTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20126.1232271.417.0
20135.7534781.422.0
20146.5747587.927.5
20155.0013921.430.3
20164.1266.07.533.3
% change-18-52-65+10

Ex-div: 6 Apr

Payment: 16 May

£1 = $1.25. *Includes intangible assets of $1.89bn, or 497¢ a share.