One to watch

Published on Friday 3 July 2009 21:26

John Wood Group 265p -2.25p Scotsman says HOLD

JOHN Wood Group provides a range of engineering, production support, maintenance management and industrial gas turbine overhaul and repair services to the oil and gas and power generation industries. It has an international profile operating through three divisions.

The group is due to report interim results on 26 August. However, in a recent trading update the company confirmed tough trading conditions in its well support division's operations.

This particularly reflects weakness in the North American gas market, where there have been volume reductions and pricing pressures. In addition, producers in higher marginal cost operations, including tar sands, have been cutting back on capital expenditure as the oil price has pulled back.

On the other hand, the international business in the well support side is proving more resilient, with strong demand for electrical submersible pumps used on offshore drilling rigs.

The engineering and production facilities arm has been winning a number of large contracts, including its first agreement involving coal seam gas in Australia and an offshore wind farm off the Norfolk coast in the UK. Gas turbine services has also held up well, picking up a major contract for Rolls-Royce and a General Electric gas turbine generator deal.

The consensus view is for earnings per share to fall by perhaps a fifth this year. Even so, this would still leave a fairly ungenerous dividend and imply a prospective price-earnings ratio of single figures. There are currency issues, with the recent relative weakness in the dollar likely to affect the sterling-designated earnings but Wood Group's shares look a solid commitment to the oil services sector.

&#149 The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.