John Wood Group PLC: Sustainable Business Model with Robust Balance Sheet

John Wood Group Plc (LON: WG.) is a multinational energy services company based out of Aberdeen, Scotland, delivering technical, engineering and project services to energy and industrial markets.

On 30^th June 2020, the company will release its trading update for the first half of 2020.

Recent News
On 3^rd April 2020, the company announced that the appointment of Jacqui Ferguson and Nigel Mills as a Chair of the Remuneration Committee and Senior Independent Director.

Update as on 2^nd April 2020
The company has taken several actions in response to COVID-19. The group is maintaining a robust balance sheet foundation and liquidity, with $1.4bn of headroom against the debt facilities and net debt to pre-IFRS 16 EBITDA was 2.0x as on 31^st December 2019. Wood has access to financing facilities, which includes a revolving credit facility of $1.75 billion, bilateral term loans of $300 million, and US private placement debt of approximately $880 million. In February end, the order book was $8 billion before the recent fall in oil prices. The Board has decided to withdraw the final dividend recommendation.

Financial Highlights (For the Year Ended 31^st December 2019) – Reflecting Growth in Earnings and Improvements in Margin


(Source: Company Website)

For the financial year ending 31st December 2019, the group’s order book declined by 7.3 per centto USD 7,898 million as against USD 8,524 million in FY2018, which resulted in the decline of revenue by 1.2 per cent to USD 9,890 million in FY2019 from USD 10,014 million in FY2018. The adjusted EBITDA stood at USD 855 million in the financial year 2019 versus an adjusted EBITDA of USD 694 million in FY2018, while the adjusted EBITDA margin stood at 8.6 per cent for the period.

Share Price Performance

Daily Chart as at April-23-20, before the market closed (Source: Thomson Reuters)

John Wood Group PLC’s shares were trading at GBX 181.05 before the market close (at 2:50 PM GMT) on 23^rd April 2020 and were up by 7.19% versus the previous day closing price. Stock 52 weeks High and Low are GBX 560.80/GBX 100.90.

Valuation Methodology


Growth Catalysts
For 2020, the company expected decent growth in its underlying revenue and EBITDA based on the existing forecasts and order book.The company is well-positioned to take benefits from growth trends across the energy and industrial markets. Over the course of 4 years (FY15 - FY19), the company’s revenue surged from USD 5,000.60 million in FY15 to USD 9,890.40 million in FY18. Compounded annual growth rate (CAGR) stood at 18.59 per cent.

Conclusion
The Group has a proven track record of leveraging its flexible, asset-light model which could sail through challenging market conditions and the company has diversified end markets.The Group reported no direct impact from Covid-19 till date. 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. The Group expect modest growth rate in revenue and in underlying EBITDA based on the existing forecasts and order book data.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Buy” recommendation at the closing price of GBX 168.90 (as on 22nd April 2020) with lower double-digit upside potential based on 7.62x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Cairn Energy PLC

UK-based Cairn Energy Plc (LON: CNE) is an independent oil and gas production and exploration company.

On 14^th May 2020, the company will organise its Annual General Meeting (AGM). On 8^th September 2020, the company will announce its Half-yearly results.

Operational Update (as on 27^th March 2020)
In light of current market conditions, the company will make substantial reductions and deferrals have already been identified for the 2020 programme, representing an overall 23 per cent reduction in capital expenditure for 2020.

Financial Highlights (for the year ended 31^st December 2019) – Reflecting Decent Performance
Net oil production stood at 23,000 bopd, reflecting the upper end of guidance(2018: 17,500 bopd). In the financial year ending 31st December 2019, driven by an increase in the oil sales for the period, the group’s revenue increased to USD 533.4 million versus USD 410.3 million in FY2018. Driven by lower operating expenses for the period, the group reported an operating profit of USD 154.9 million in FY2019 versus an operating loss of USD 129 million in FY2018.

Share Price Performance

Daily Chart as at April-23-20, before the market closed (Source: Thomson Reuters)

Cairn Energy PLC’s shares were trading at GBX 109.70 before the market close (at 3:15 PM GMT) on 23^rd April 2020 and were up by 11.25% versus the previous day closing price. Stock 52 weeks High and Low are GBX 216.80/GBX 57.35.

Valuation Methodology

*Peers: Genel Energy Plc, EnQuest Plc, Pharos Energy Plc, Serica Energy Plc, and IGas Energy Plc.

*Currency exchange Rate for 1USD = 0.810745 GBP

Conclusion
The group remained discipline while investing in the new projects, as the recent macro-economic factors are making the environment more challenging. Due to the outbreak of coronavirus (COVID-19), the oil prices have fallen substantially in the first quarter of 2020. The recent crisis between Saudi Arabia and Russia over oil price crises resulted in the share price to fall. Presently, the company also faces volatility in the macro-environment. The company has recorded decent financial performance for the financial year 2019. The company has shown good top-line and the bottom-line performance for the period. In the current operational update, Cairn shows a good increase in production. It also look forward to the results of the exploration drilling programme in Mexico. The group expects first oil from Senegal-Sangomar field in the year 2023 with gross production of 100,000 bopd.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Buy” recommendation at the closing price of GBX 98.60 (as on 22nd April 2020) with lower double-digit upside potential based on 4x NTM EV/EBITDA (approx.) on FY20E EBITDA (approx.).
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.

*The “Buy” recommendation is valid for the current price as covered in the report (as on 23rd April 2020).

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