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Wood: rot or renewal?

The combined group's first set of full-year results lacked inspiration
March 20, 2018

For Wood Group (WG.) – or ‘wood.’ as the oil services and engineering group’s website now suggests we call it – 2017 was dominated by the all-share acquisition of stuttering peer Amec Foster Wheeler. Five months after the nuptials, the conversation is still about the savings of moving in together, and less about how this marriage will work. For chief executive Robin Waston, there is now a “platform to unlock revenue synergies and generate good longer-term growth”. Emphasis on ‘longer term’ there.

IC TIP: Sell at 606.6p

Trading remains choppy, and last year the combined groups saw an 11 per cent decline in pro-forma earnings before interest, tax and amortisation to $598m (£427m). In 2018, we only have signs of “early-stage recovery in certain areas” of the core oil and gas market. Margin decline will also need to be arrested; on both a pro-forma and reported basis, profitability fell in every division bar the small environment and infrastructure business.

Moreover, it is arguable whether the integration drive has stepped into gear. The $40m of annualised cost savings made to date (at a one-off cost of $30m) are ahead of schedule, but redundancy and restructuring synergies are hardly pointers to long-term value creation. Streamlining the executive team does not beget sales to nervy oil and gas clients.

More promising, perhaps, is a recent contract to design and manage a pioneering, fully-integrated crude oil to chemicals complex for Saudi Aramco. Though no financial details have been released, the project is likely to be a big earner: spanning seven years, the development will eventually process 400,000 barrels of oil per day and around nine million tons of chemicals and base oils a year.

Consensus forecasts are for full-year adjusted pre-tax profit of $444m and EPS of 59.7¢, compared to $180m and 52.5¢ in 2017.

WOOD GROUP (WG.)   
ORD PRICE:607pMARKET VALUE:£4.11bn
TOUCH:607-608p12-MONTH HIGH:830pLOW: 553p
DIVIDEND YIELD:4%PE RATIO:na
NET ASSET VALUE:732¢*NET DEBT:33%
Year to 31 DecTurnover ($bn)   Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20135.7534781.422.0
20146.5747587.927.5
20155.0013921.430.3
20164.12667.5033.3
20175.39-22-7.4034.3
% change+31--+3
Ex-div:19 Apr   
Payment:17 May   
£1=$1.40 *Includes intangible assets of $6.87bn, or 1,014¢ a share