Wood’s ‘prospects are improving, but there is still some way to go’

Following Wood’s (LON: WG) latest trading update, shareholders will need evidence of improvement before another takeover bid is rejected, said RBC Brewin Dolphin.

The firm’s CEO Ken Gilmartin shared Wood’s “growth strategy continues to deliver” following the extended deadline for Dubai-based competitor Sidara’s takeover bid.

The north-east headquartered business granted Sidara access to due diligence materials in June as it mulled the final offer, which valued the firm at around £1.6bn.

Now Sidara, also known as Dar Al-Handasah Consultants Shair and Partners, has until the end of this month to give a final offer under “put up or shut up” takeover rules.

Sidara had until 5pm on 3 July to confirm its “‘final offer”‘ for Wood at 23op per share, but the Wood board and the independent Takeover Panel agreed to an extension until 31 July.

Zoe Gillespie, investment manager at RBC Brewin Dolphin, explained: “Speculation continues around Wood’s future, with Sidara having to make an improved offer or drop its bid to buy the company by July 31.

“The most recent bid valued Wood at a 52% premium to its current share price, putting pressure on the management team to deliver on plans to reverse the engineering group’s fortunes, after the share price fell to levels last seen in 2009.”

Wood celebrates ‘good growth in operations’

Wood’s recent reporting shows that its forecasted adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of around $210 million was up around 4%.

The firm’s order book is also up by 2%, however, its revenue is down by 6%.

On revenues, the firm argeus that it has “good growth in operations” which are being offset by “expected lower revenue in projects” as a result of its “strategic shift away from EPC work, lower pass-through activity and ongoing weakness in our minerals business.”

© Supplied by Wood

Mr Gilmartin commented: “Our growth strategy continues to deliver, with further growth in EBITDA and order book.

“Crucially, we are now seeing the improving quality of our business coming through with margin expansion as we focus on engineering services and consulting and move away from EPC work.”

Despite “delivering results” RBC Brewin Dolphin’s investment manager says more will have to be done to convince shareholders.

Shareholders will want to see clear evidence of improvement

Ms Gillespie added: “Wood’s simplification programme is delivering results and its prospects are improving, but there is still some way to go to close the gap between its current valuation and the offers made for the company.

“Shareholders will want to see clear evidence that will be made up if another bid is going to be rejected.”

In this morning’s update, the Wood boss said his firm will “remain focused on delivering our potential, including generating significant free cash flow next year.”

Mr Gilmartin said that Wood is “winning exciting and complex work” across the business as he progresses with a simplification strategy.

Recently, Wood secured a contract with Shell for work on the Prelude floating liquified natural gas (FLNG) facility in Western Australia.

This came soon after the firm announced it has been selected by EPCI contractor Rosetti Marino to deliver a front-end engineering design (FEED) study for the INEOS Hejre development project in the Danish sector of the North Sea.