John Wood Group PLC

John Wood Group PLC (WG) is an Aberdeen, Scotland-headquartered multinational energy services company which is a global leader in the delivery of project, engineering and technical services to industrial and energy markets. The group's operations are differentiated in five operating segments: Assets Solutions Americas (AS Americas), Asset Solutions Europe, Africa, Asia, Australia (Asset Solutions EAAA), Environment and Infrastructure Solutions (E&IS), Specialist Technical Solutions (STS) and Investment Services.

On 16^th January 2020, the company will announce the trading update for the year ended 31 December 2019.

Recent News
On 20^th September 2019, the company announced that it had reached an agreement to sell its nuclear business for a cash consideration of £250 million (around $305 million) to a subsidiary of American engineering company Jacobs, which will allow the company to reduce its debt levels.

inancial Highlights (for the six months ended 30 June 2019, US$ million)

(Source: Interim Reports, Company Fillings, LSE)

Even though E&IS recorded good growth in revenue due to spending increase by the government and industrial market in the US built environment market, lower revenues in ASEAAA and STS led to a 2.6% decline in the revenue for the period to $4.8 billion from $4.9 billion in the prior year. Adjusted EBITDA excluding the impact of IFRS 16 was up by 7.2% to $314 million, which reflected a 60-basis point improvement in adjusted EBITDA margin (excluding the impact of IFRS 16) to 6.6%, while adjusted EBITDA was $384 million, with an adjusted EBITDA margin of 8%. While basic earnings per share rose to 2.1 cents from a loss per share of 7.9 cents reported in the last year (H1 FY18). In line with the progressive dividend policy, the interim dividend rose by 1% to 11.4 cents per share. Due to two cash receipts totalling $130 million which were anticipated in June but received in early July, net debt (excluding liabilities related to leases) at the end of June rose to $1.77 billion, while the ratio of net debt (excluding the impact of IFRS 16) to trailing 12 months adjusted EBITDA pre IFRS 16 was 2.5x at 30 June 2019 (H1 2018: 2.4x).

Share Price Performance

Daily Chart as at October-11-19, before the market closed (Source: Thomson Reuters)

On 11th October 2019, John Wood Group PLC shares were trading at GBX 337.20 at the time of writing before the market close (at 2:07 PM GMT), up by 2.461% against the previous day closing price. Stock's 52 weeks High and Low are GBX 750/GBX 325.70. The company’s stock beta was 1.24, reflecting the higher movement of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
The company is making good progress on non-core asset disposal programme, helping it to focus on core business and improve efficiency. Higher activity levels across all business units along with a strong pipeline of opportunities and excellent progress on cost synergies augurs well for the company.

An Iranian-owned oil tanker was hit by two missiles in the Red Sea off Saudi Arabia's coast on Friday, Iran's state television reported, quoting the National Iranian Oil Company (NIOC) which owns the vessel. The incident, which caused an oil spill and a jump of as much as 2.6% in crude price.

The group is confident of delivering revenue growth in the region of 5% in 2019, as 87% of 2019 forecasted revenues are delivered or secured, helped by around $4.3 billion of the order book to be delivered in 2019. The company continues to expect strong full-year cash conversion after exceptional items of about 80-85% and growth in full-year adjusted EBITDA is expected to be in line with market expectations of 8%.

Maintenance of progressive dividend policy and debt reduction continues to be the preferred mode of cash usage, and the company is in a good position for growth trends emerging across a broad range of industries which is expected to help post a decent organic growth rate.

In the last five years, revenue has risen by a CAGR of 12.5%, while gross profit grew by a CAGR of 5.2%. Moreover, net income has also reported a profit, after a loss was recorded last year. The fundamentals of the group remain strong, indicating that the stock can give decent returns in the long run.

Based on the decent outlook and valuation done using the above methodology, we have given a "Buy" recommendation at the closing price of GBX 329.10 (as on October 10, 2019), with single-digit up-side potential based on the 9.02x NTM Price/Earnings per share (approx.) on the FY19E earnings per share (approx.).

 
*All forecasted figures and Peer information have been taken from Thomson Reuters. All USD figures have been converted into GBP; USD: GBP - 0.791910).
*The “Buy” recommendation is also valid for the current price as covered in the report (as on 11th October 2019).

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