Investment Column: John Wood is a solid play on oil services
Tuesday 22 February 2011
Our view: buy
Share price: 643.5p (-2.5p)
John Wood's full-year figures were slightly ahead of hopes, with the oil services giant announcing a 4 per cent decline in earnings before interest, tax, and amortisation (Ebita) to $344.8m, compared to consensus expectations of $337.4m.
The group received a boost from its well support division, which posted a strong performance. Elsewhere, the engineering business proved to be more subdued, while earnings at the gas turbine services arm were some 30 per cent lower, with the performance hampered by factors such as the deferral of maintenance spending by customers.
The weak spots should recover as the broader oil-services market regains its composure in coming months. Indeed, the group's outlook statement was upbeat, boding well for the future. Moreover, it is worth remembering that Wood recently agreed to offload its well support arm to GE in a $2.8bn deal. Bolstered by the proceeds, the group said would return not less than $1.7bn to investors, with details due following completion later this year.
That should support the shares, that trade on multiples of around 8 times enterprise value to Ebitda (earning before interest, tax, depreciation and amortisation), leaving them slightly behind the sector, which is on more than 9 times, according to Numis.
The strong balance sheet, the outlook and the upcoming cash return for shareholders only, adds to the attraction, making this a solid investment, in our view. Buy.
Our view: hold
Share price: 14.25p (-3.12p)
Profits at Helphire veered off course in the second half of last year. The company, which supplies replacement vehicles to drivers involved in accidents that were not their fault, posted pre-tax profits down by 37 per cent to £3.6m for the six months to 31 December, driven by the termination of a number of contracts and lower accident rates.
The lower profits spooked investors and shares in Helphire – which has been through a major restructuring over the last two years – came under pressure yesterday. Having shed £204.4m of net debt and 51 per cent of its workforce since December 2008, Helphire said its restructuring and consolidation projects have been "broadly completed" and it touted two new partner referral contracts.
The firm, which now has non-fleet related net debt of £75.5m, has also doubled its net cash flow position to £6.3m. But it passed on an interim dividend. Furthermore, we have concerns over Helphire's growth prospects at a time when record petrol prices will hit car journeys.
Helphire, which also provides non-fault accident insurance services, also faces fresh competition from the car rental firm Enterprise, which entered the market last year. Given that Helphire only trades on a forward earnings ratio of just over 4, some may be tempted to buy their shares. But we think further evidence is required that it is on the road to recovery. Hold.
Our view: buy
Share price: 616p (+6p)
Lancashire Holdings has only been around since 2005, when it was founded at the end of a damaging year for the insurance industry, with Hurricane Katrina one of many large natural disasters.
Yet despite its youth, the Lloyd's of London insurer has performed impressively. 2010 was a particularly strong year for its share price, which rose nearly 50 per cent to 647p before a sharp fall in mid-December as the stock went ex-dividend.
Since that drop, it has managed to return to near that peak and yesterday's numbers impressed once again. Last year was a tough one for the sector, but the Bermuda-based company's pre-tax profit of $339m beat expectations thanks to a decent showing in the final three months, despite the events in Australia and New Zealand.
As well as hopes of more special dividends and a new buy-back programme, there continues to be positive sentiment around the management and Lancashire should also benefit from a growing energy insurance market following the Gulf of Mexico oil spill. So, despite the recent rally, there still seems to be scope for further gains. Buy.
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