- Full year to be in line with expectations
- But engineering EBITA downgraded 15%
- 'Deterioration' in some markets
Energy services firm Wood Group said it has delivered 'good growth' this year, despite trading remaining distinctly mixed with its Western Canada markets 'weak' and its key engineering division being downgraded for 2014 due to deterioration in upstream markets.
While the company stressed that results for the 12 months ending December 31st are expected to be in line with expectations, it warned that project delays offshore, together with upstream weakness in Canada, was expected to result in a reduction in Engineering earnings before interest, tax and amortisation in 2014 of around 15% compared to the current year.
Analysts at Credit Suisse, which remained positive on the stock in the medium term, said: "There is no getting around the fact that Wood Group's pre-close trading update contains little to provide festive cheer at this time of year. At least WG has confirmed that 2013 should meet market expectations, but 2014 guidance will disappoint the market, and we anticipate that the shares
will trade off heavily intra-day."
Broker Liberum added that it expected forecasts to be trimmed 5-10% and that "the market will worry about further warnings from the peer group".
Wood predicted growth overall in 2014 due to a mix of spending and contribution from completed acquisition, with trading in Wood Group PSN, a provider of brownfield services to the oil and gas industry, offsetting the reduction in engineering.
Wood Group PSN was said to be currently performing well with growth led by its US onshore shale related business.
The North Sea market is "strong" with recent contract renewals providing good revenue visibility for the future. The company also hailed its recently increased exposure to the US shale market. In international markets, however, Wood Group PSN's performance continues to be held back by its contract in Oman.
The Engineering division is on track to hit its guidance for 10-15% growth in 2013 earnings before interest, tax and amortisation (EBITA). However, it warned that EBITA would fall by 15% next year after the completion of major projects and the deterioration in some markets, mainly related to project delays offshore together with upstream weakness in Canada.
The firm's other division, Wood Group GTS, which provides maintenance and repair services for turbines, is expected to see EBITA fall in 2013 due to lower profits in Power Solutions and some recent deferrals in Maintenance.
Credit Suisse pulled its EPS forecasts for 2014 and 2015 down by 9% and 2%, and as a consequence our target price drops to 850p.
"Despite the drag of this trading update we continue to be positive on Wood Group, and we believe that as with many other oilfield service sub-sectors 2014 is shaping up to be a year of transition, with customers taking a breather before activities kick off again in 2015," the analysts said.
"Were we to roll our valuation to 2015 forecasts the valuation would rise to 960p. It is undoubtedly too early to do that, but with the shares likely to trade down towards mid-700p levels there will be enough upside and the right balance of risk (i.e. low) and reward to retain a positive rating."
Shares in Wood Group were down 10.5% to 713.5p at 13:25 on Thursday, bringing down several peers including AMEC and Petrofac with it.