Wood Group, the oil services business, looks like one of the strongest companies seeking a new listing for its shares in the UK this spring.
First, it has a solid and lengthy financial track record. Sales have grown from about 150 million pounds in 1991 to more than a billion pounds last year. In the past three years revenue has all but doubled and, over the same period, operating profits have jumped from 18 million to 73 million pounds. Some of the growth has come from acquisitions. The relatively high price of oil has also underpinned customers’ enthusiasm for the company’s services because it has fuelled oil exploration and production activity. But the company’s growth record spans swings in the oil price cycle. It also says that seventy percent of the growth won since 1991 has come organically.
Second, Wood argues convincingly that it can continue to grow. It has worked hard to position itself as a provider of oil industry services that will be required irrespective of the general state of oil exploration and production. Wood is a leading practitioner in deep sea drilling and some of the largest new oil fields now being developed fall into this category. Wood also stands to benefit from work on established fields where it is increasingly common that producers need to pump oil out of the ground rather than rely on the black stuff gushing out of its own accord.
Third, Wood’s senior managers are respected. Sir Ian Wood, chairman, is a well-known figure, especially in the Scottish business community.
Fourth, and in marked contrast to some of the other debutantes, it does not look as if the float is occurring to provide an over hasty exit for greedy venture capitalists. Some of Wood’s existing shareholders are taking money out. So is Sir Ian. But all are long term investors in the company and are retaining holdings on a continuing basis. The total being withdrawn is about 100 million pounds. In the context of the expected initial market capitalisation of a billion pounds this is a very modest sum.
There are doubts, of course, and the biggest of these concerns the oil price. Despite its track record and Wood’s efforts to reduce exposure, it remains vulnerable to swings in the price of this ever unpredictable commodity. The expected dividend yield of about one percent is also rather thin. But shares, likely to be sold at the mid point in the mooted 175p to 210p range, will go at 15 times best-guess estimates of current year earnings. That represents a modest discount to peers.
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