Wood Group - Founder retires
10/15/2012
It is the end of an era at oil and gas services firm Wood Group with retirement of founder Sir John Wood as Chairman. The interim results served as a good send-off with EBITDA and profits before tax from continuing operations both up over half.
Wood Group saw a reshuffling of its business last year with its Well support division sold to US giant GE for US$2.8bn in April. The group also bought the production services business PSN for US$1bn in December 2010 and returned US$1.73bn to stockholders.
The upshot of which is that the business is left with three divisions. These are a Production services business now called Wood Group PSN, an Engineering division and lastly Wood Group GTS (Gas Turbine Services).
Wood Group PSN and Engineering are the most significant profit drivers and focus on the oil and gas sector. Meanwhile Wood Group GTS focuses on the power generation markets and in particular gas powered plants.
Wood Group PSN has projects from 3-5 years while in the Engineering division they range from 3-25 months. Engineering has much higher margins but with lower revenue and fewer employees both areas generate similar EBITDA. At Wood Group GTS the 1-5 year projects are both Opex and Capex driven which provides stability.
The new structure in combination with the capital return has had a robust effect on the company’s 2012 H1 financial results. Engineering generated US$104m of EBITDA, Wood Group PSN U$90m and Wood Group GTS US$38m.
Margins fell slightly in Wood Group PSN but increased in Engineering and Wood Group GTS. Thus market conditions look to have remained relatively strong with overall margins up from 5.5% to 6.1%.
Drilling down into the financial numbers and the performance was solid with revenue and EBITDA from continuing operations up 36% and 53% respectively. Meanwhile, adjusted diluted earnings per share (EPS) was up 48% to 37.4 cents with the dividend increased by 46% to 5.7 cents.
Wood Group ended the first half with net debt of US$107m which compares to US$985m net cash a year ago. This was driven by the return of cash following the US$2.7bn inflow and the balance sheet remains robust.
On 21st September, Wood Group announced it would acquire Michell’s Oil Field Services – which focuses on the oil-rich Bakken shale region - for an initial consideration of US$135m. A smaller acquisition of Duval Lease Services was also announced on 3rd August which focuses on the Eagle Ford shale region.
A sign of Wood Group’s success despite the capital return is that the company re-joined the FTSE 100 in September. The split in the company’s businesses between capital and operating will provide some resilience in the case of a downturn.
The boost to earnings per share this year meanwhile, sees the group trade on 15X earnings for 2012. This is broadly in-line with peers (AMEC & Petrofac) while the P/E falls to 12.8X for 2013 and then 10X is forecast for 2015.
This article was produced by Senior Research Analyst, Andrew Latto
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