Fluctuating oil price won't help John Wood

Now is the time to buy Xansa; Don't rush to fly into Landround

All the major oil companies have set out ambitious targets to boost production, but all of them need to keep the costs of their expansion as tight as possible. Enter the oil services companies – such as John Wood Group – to whom the majors are increasingly outsourcing rig design, project management, well maintenance and the like. And so, last week, enter John Wood to the London stock market, the first unequivocally successful flotation of the year.

The company has been on an acquisition spree in recent years, and is using the proceeds of the float to pay down debt. The Wood family, one of Scotland's richest, stays in firm control and promises more purchases. There are concerns about the shortage of checks and balances on the family's power, but management, which has steered the company through some impressive growth already and the recent acquisitions are working out well.

The move into new industry areas or geographical markets carries with it risks, not least of political instability in the Middle East or Latin America that could disrupt projects. Also, as oil and gas industry outsourcing gathers pace, Wood is likely to face pressure on its margins. And it may be tempted to take on more complex projects that would involve greater working capital.

The biggest risk for the shares is the oil price. It is only partly fair that Wood shares should fluctuate with crude. When the oil price crashed to $10 a barrel in 1998, the oil majors found there were fewer places they could profitably get oil out the ground. The resultant cutbacks in capital spending did mean Wood's profits fell back, but not by much. Commentators think the oil is unlikely to take a dramatic turn for the worse with economic activity now picking up, but it is ever unpredictable.

Wood's shares arguably do not reflect all these dangers. For the time being, the company is a beacon of stable growth in a confused world, and attracts a premium to the rest of the market for that reason. That's fair for now, with oil company spending at the top of the cycle. But at 212p, down 6p yesterday, the price is not cheap enough to attract long-term investors.

Now is the time to buy Xansa

XANSA IS to run A&FS for BT as the IT group launches its BPM offering in the BPO marketplace. The news is A-OK.

Let us explain. Xansa (the IT consultancy) is to manage British Telecom's internal accounting and financial services (A&FS) needs, such as making up pay-slips, paying expenses and preparing financial reports. This sort of deal is known in the jargon as business process outsourcing, a favourite cost-cutting measure of big organisations.

The reason it is good news is that it marks Xansa's first foray into business process management (BPM). The group is setting up a new division, starting with the 570 BT employees who will transfer on 1 July. It hopes to be able to sell these sorts of services to its existing clients around the globe, a useful add-on to running their IT systems and giving other technology advice. The BT contract is worth £250m over seven years, and the news that it has finally been signed – eight months after being announced – will be a relief to investors battered by three profit warnings. The word is BT is getting more for its money than expected, but few people were complaining yesterday.

Much of Xansa's work can be carried out in India, where wages are lower, so the group has a competitive business model. Even after the disappointments of recent months it has been forced to downgrade expectations by less than many of its main rivals, and Hilary Cropper, who is moving up to non-executive chairman later this summer, retains the respect of the City. The share price, down 5p to 137.5p yesterday, is now much more realistic. On 13 times Old Mutual's forecast of current year earnings, the stock is a buy.

Don't rush to fly into Landround

Investors in Landround, the travel promotions group, enjoy perks such as free travel as a foot passenger on P&O Ferries. The incentive has not been enough to keep shareholders on board after two dire profit warnings last year holed the stock below the waterline. It sank from a peak of 397p to 56.5p in November.

The problems stemmed from the launch of Landround's Buy & Fly! initiative, an alternative to British Airway's Air Miles scheme. In getting the idea off the ground, the company neglected its core voucher business and the loss of these higher margin sales fed straight through to the bottom line.

While these technical problems appear to have been fixed and Landround is making progress in signing up companies such as Orange and npower to Buy & Fly!, the scheme has yet to take off. Despite the support of 16 airlines, including British Midland and Cathay Pacific, until Landround ups its consumer profile, signing a big supermarket, Air Miles – which recently switched from J Sainsbury to Tesco – will remain the plane-spotters' favourite.

Elsewhere, the group's traditional travel promotions business, which offers tempting rates in rural hotels, was subdued by foot-and-mouth and 11 September. Landround climbed back into the black in the six months to end-March but sales were down 22 per cent to £2.9m.

Investors should wait for the Buy & Fly! scheme to get off the ground before buying.