Revamped Wood Group – a buyout play?

Wood Group (WG.) management could almost complain about its revamp plan being too successful, too quickly, given the recent slew of offers from Apollo Global Management for the energy and mining services company. 

This plan has seen the consulting business sold off and $1bn (£810mn) knocked off the debt pile, as well as a turn away from turnkey projects that have proved hazardous to the bottom line in recent years. 

The current state of the potential buyout – Wood Group has not definitively said no to 237p a share, but would be “minded to reject” this level, which would be a 53 per cent premium on its share price from before the approach was made public. Apollo has until 19 April to make clear its “firm intention to make an offer” under Takeover Panel rules. 

While 2022 was a transition year, the company’s key divisions are already well established and much of the shift involves making sure these have the resources to hit growth targets. The now-gone consulting division was part of the Amec Foster Wheeler acquisition from 2017, which continues to fill the income statement with one-off payments to former clients and regulators. 

The company wrote off $542mn in goodwill after the consulting sale, and this took the operating loss for the year to $568mn. 

Chief executive Ken Gilmartin was tight-lipped about the potential buyout, but said even the weaker energy prices had not put a dent in the large-scale project market. “From an energy security standpoint, it’s still consistent and strong [with a] 5-6 per cent [compound annual growth rate],” he said, also highlighting the boost from the Inflation Reduction Act in the US in the hydrogen and carbon capture spaces. 

The company talked up chemicals project wins in the year but Gilmartin said this had slowed recently as “clients had got ahead of the cycle”, by launching projects last year. Mining is also looking weaker as higher costs eat into new project returns, he said. Wood Group's style of contract is also changing – it has sworn off lump-sum turnkey projects in favour of reimbursable contracts that don’t end up lossmaking if conditions change. 

The company’s overall order book was up 4 per cent on a constant currency basis, to $6bn, of which $3.9bn is for delivery this year. Adjusted cash profit of $388mn was slightly ahead of analyst forecasts, while Investec sees this climbing to $403mn this year and $449mn in 2024. 

The shares obviously reacted strongly when the Apollo approach became public, but we’re not at the takeover arbitration stage yet (especially given the shift in global financing in the interim). Hold. 

Last IC View: Hold, 145p, 23 Aug 2022