John Wood Group Plc – Protecting Margins to Remain Resilient in FY20

John Wood Group is a FTSE 250 listed Company, which provides technical and engineering services to energy and industrial markets. It operates in over 60 countries with approximately 55,000 employees.

Recent News
5 May 2020: The Company announced the partnership with National Energy Resources Australia (NERA) to develop a solution for inspection of industrial equipment used in subsea oil and gas infrastructure.

Pre-Closing Trading Update (for the six months ended 30 June 2020)
As per the update released on 19 June 2020, the Company affirmed that around 40,000 people are remotely and safely working on the sites now. The like-for-like revenue for H1 FY20 is likely to be down by around 11% and adjusted EBITDA to go down about 19%. However, the Company continued to win new orders and secured new orders for $1.3 billion in April and May. The renewable activity has gone up around 4% in the first half, whereas the upstream & midstream activity gone down by around 5%. As at 30^th June 2020, the net debt is projected to be reduced from the level of $1.43 billion reported at the end of December 2019. Going forward, the Company is taking initiatives to protect margins. Moreover, the Board has withdrawn the recommendation of final dividend to preserve around $160 million in cash.

Share Price Performance

1-Year Chart as at 2 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

John Wood Group PLC’s shares closed at GBX 199.55 on 2 July 2020, which was up by 0.88% against the last day closing price. Stock 52 week High and Low were GBX 560.80 and GBX 100.90, respectively.

From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

 
Valuation Methodology

*Peer: Petrofac Ltd, Hunting PLC, Saipem SpA, and TechnipFMC PLC.

* 1USD is equal to 0.797655 GBP
 
Risk Assessments
The Company has a strong order book in place to remain resilient throughout the FY20. Moreover, the recent disposal of nuclear and industrial services businesses has generated addition liquidity of around $399 million.

Conclusion
The Company has been putting efforts to protect margins and targeting to reduce overhead cost over $200 million to deliver strong second-half performance in FY20. The total order book at the end of May was $7.0 billion, which is down by around 11% since December 2019, $3.5 billion is still due to be delivered in the second half of FY20. The Company also has secured framework agreement for five years with the US Navy for design, engineering, and maintenance of fuel installation. Overall, the Group is in decent position to deliver a strong performance in the long run.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “BUY” recommendation at the closing market price of GBX 199.55 (as on 2 July 2020) with lower double-digit upside potential based on 3.08 Price/NTM Cash Flow (approx.) on FY20E Cash Flow Per Share (approx.).

W Resources Plc – Operating with Strong Fundamentals, Despite Volatility in the Oil Prices

W Resources Plc (LON: WRES) is an AIM-listed mining Company and is involved in the exploration, production and development of Tungsten metal, through the subsidiaries.

Recent News
On 30 June 2020, the Group held the Annual General Meeting, where they discussed the challenges faced by COVID-19 on La Parrilla and progress on the Sao Martinho.

Financial Highlights (for the year ended 31 December 2019, as on 1 June 2020)
For the financial year ending 31st December 2019, driven by an increase in the mineral exploration revenue for the period, the revenue increased to €0.4 million (2018: €0.2 million). Due to an increase in operating expenses, the operating loss (before exceptional item) stood at €1.2 million in FY2019 versus operating loss (before exceptional item) of €0.9 million in FY2018. The loss for the year stood at €2.9 million in FY2019 (2018: loss of €4.5 million). As at 31 December 2019, the Group held cash and cash equivalents of €2.5 million and had current liabilities of €8.0 million.

Share Price Performance

1-Year Chart as at 2 July 2020, after the market close (Source: Refinitiv, Thomson Reuters)

W Resources Plc’s shares closed at GBX 0.22 on 2 July 2020, which was down by 2.22% against the last day closing price. Stock 52 week High and Low were GBX 0.45 and GBX 0.091, respectively.

Risk Assessments for the Short-Term Period

The Company mainly does transactions in pounds and euro and has borrowings in US dollar. Foreign currency fluctuations can impact the business operations in the near term. The Company considers that the price of tungsten is an area of potential risk. Some other risks which can impact business operations are capital constraints, global economic volatility, commodity price risk, legal compliance regulatory or litigation risk, adverse market sentiments, political and country risk.

Conclusion
In the financial year 2019, the Company’s profitability remained in the negative zone, but the top-line and the bottom-line performance have improved for the period. The market conditions in which the Company operates is strong, which will increase the financial performance and bring operational balance. The Group’s La Parrilla project in Spain is amongst the largest and low-cost tungsten mine globally, which will help in delivering earnings growth in coming years.
The combined production of Tungsten and Tin increased to 45.2t, and strip ratio and mining costs remained below and lower than budgeted mine plan in the first quarter of the financial year 2020. In Spain, COVID-19 shutdown for mining operations has been lifted, but full-scale operations are still on hold. The Company had completed the T2 expansion, a world-class tungsten project at La Parrilla. W Resource Plc’s La Parrilla project is now fully funded and under full project development. Overall, the Group seems to be well-placed for the coming’s months.

Therefore, based on the above rationale, we have given a "Speculative Buy" recommendation on the stock, at the closing market price of GBX 0.22 (as on 2 July 2020).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
* The “Buy or Speculative Buy” recommendation is valid for the current price as covered in the report as on 3^rd July 2020.

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