Questor says buy John Wood Group after recent pull back in share price.
John Wood Group 734p Questor says BUY
John Wood Group operates in three business units. In 2013, 43pc of operating profit is expected to come from its engineering division, which provides services for deepwater platforms, subsea pipelines and mature field production support and enhancement.
Its PSN business is expected to generate 41pc of operating profit and it provides long-term support for existing oil and gas facilities. Wood’s GTS business should generate 16pc of profit. It provides power solutions, engineering and after-market services for turbines in the oil and gas and power sectors.
The shares have moved off a six-year high seen earlier this year as it looks like there could be some softening of growth next year. However, analysts still expect earnings per share (EPS) to grow by 19pc in 2013 compared with expectations of 37pc
EPS growth in 2012. In last week’s trading update, Wood warned that its Canadian oil sands business was likely to see a slowdown, with profits at its power business also expected to be lower next year. Margins are also expected to increase by 50 basis points next year.
For 2013, Barclays (LSE: BARC.L - news) has predicted a growth in exploration and production spend by oil companies of about 7pc. This is a slowdown compared with 2012, but there should be plenty of opportunities for the company.
Wood has engineering expertise in growth areas such as Arctic engineering, liquefied natural gas (LNG) and subsea technology. As the search for new sources of oil and gas moves gets more difficult and moves to more extreme environments, Wood’s skills should continue to be in demand, with medium-term prospects remaining sound.
There has been a pull-back in the share price over the past few months and this has created a buying opportunity for a company operating in a business with long-term structural drivers.
The shares are trading on a 2013 earnings multiple of 11.8, which does not look overstretched, but the prospective yield is just 1.8pc, so income seekers should look elsewhere. Wood’s portfolio looks well-positioned and it should continue to outperform the sector and have resilience when markets are weak.
Questor rates the shares a buy for its long-term growth prospects.