James Fisher hamstrung by expenses

James Fisher & Sons (FSJ) registered an encouraging revenue increase at the half-year mark, along with a slight uptick in the gross margin. Unfortunately, a steep rise in administrative expenses linked to refinancing legal and advisory costs and increased debt servicing charges sent the engineering services group to a net earnings loss for the period.

Nonetheless, the statutory loss should not deflect attention from the improved showing across all three divisions. The energy division was the chief driver of revenue as demand picked up for the group’s well-testing and artificial lift offerings. The division saw a 26 per cent uplift in revenue to £134mn, accompanied by a 21 per cent increase in underlying profitability. Product rentals from the Scantech companies, which includes bubble curtain solutions (pneumatic barriers), increased by 47 per cent to £33mn.

Overall, the group delivered a 23 per cent increase in underlying operating profit to £14mn, doubly significant in that it forms the basis on which banking covenant Ebitda is calculated. Net debt as a proportion of shareholder funds has increased by 16 percentage points since the year end, while the leverage multiple now stands at 2.8 times against the covenant limit of 3.5 times.

Management has maintained full year guidance, adding that “further strategic progress is expected in the second half and performance in July and August were in line with expectations”.

Undoubted progress, but the general outlook for the offshore wind and oil and gas markets is now somewhat unsettled from a political perspective, a point borne out by the latest unsuccessful offshore wind licensing round, so the forward rating of 17 times adjusted consensus earnings still looks ambitious, especially given the debt overhang. Sell.

Last IC view: Sell, 322p, 28 Apr 2023