The 3 Week Diet System

Thursday, June 25, 2015

Questor share tip: Wood Group still a sell as profits fal

June 25:

The oil services group said first-half profits are lower than the same stage last year and Questor thinks the shares have further to fall 


The company reported total group revenue of $7.1bn, and pre-tax profit of $413m,


The oil services group reported total group revenue of $7.1bn, and pre-tax profit of $413m, Photo: Rex Features

Wood Group [LON:WG] the oil services company, said yesterday that first-half results were lower than the same stage last year. However, it still expects full-year earnings to be “broadly in line” with market expectations. Questor is not as optimistic and thinks the shares have further to fall.
The company has a well-diversified business that can withstand the sharp fall in the oil price, but Questor is concerned about one particular part of the business that has grown rapidly in recent years on the back of the US shale.
The FTSE 250-listed company is split into three divisions. Its engineering division, which provides services for deepwater platforms, subsea pipelines and mature field production support and enhancement, contributes about 37pc of group profits.
This business won’t be hit as hard from lower oil prices as it supports existing rigs producing oil.
Wood’s PSN turbine business should generate 6pc of profit. It provides power solutions, engineering and after-market services for turbines in the oil and gas and power sectors.
Wood Group PSN, has grown rapidly supporting the shale boom in North America and contributes about 57pc of group profits. The company said the US onshore activities for Wood Group PSN are “predominantly shale related”, and were the “largest contributor” to the PSN division profits last year.
The number of rigs in use across North America has collapsed from 2,123 this time last year, to 986 at the end of last week, according to Baker Hughes the research firm.
Questor believes the slump in rig activity will have a negative impact on profits at PSN and drag the company far short of analyst expectations. That market consensus is for pre-tax profits to fall to about $372m at the end of December, from $475m last year.
The shares trade on 13 times forecast earnings and Questor remains negative on the outlook. Sell.


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