ii view: Wood Group shares plunge again
Takeover talks are ongoing, but Wood Group shares will likely be suspended at the end of April as it works to complete its accounts for 2024. We assess prospects.
31st March 2025 11:32
by Keith Bowman from interactive investor
Business update
ii round-up:
Oil industry engineer John Wood Group (LSE:WG.) today announced expected adjustments to prior year accounts following an independent audit review which found material weaknesses and failures in the company's financial culture.
Due to the timing of the review and required prior year adjustments, as well as the extensive work required to conclude the audit, Wood Group now expects its accounts for 2024 will not be published by the 30 April deadline. In that case, Wood Group shares would then be suspended from trading while it finishes number crunching.
Wood Group remains in discussions with Dar Al-Handasah Consultants Shair and Partners Holdings Ltd, referred to as Sidara, about a possible cash offer for the company.
Shares in the FTSE 250 firm plunged 30% in UK trading having come into this latest news down around 70% over the last year. Rival Petrofac Ltd (LSE:PFC) is down 79% over that time. The FTSE 250 index has fallen 0.6% over the last year.
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Wood Group’s expertise stretches from oil and gas pipeline design to wind turbine and tidal energy projects. The group flagged significant changes to key roles in financial management already made, plus plans to continue strengthening the company’s financial culture, governance and controls.
Wood Group does not currently expect any material impact from the Audit Review on the company's ability to generate cash in future.
Management remains in constructive talks with the group's lenders regarding refinancing options and will engage with lenders in respect of the timing of its 2024 accounts, including putting in place appropriate pre-emptive waivers under its committed debt facilities.
Dubai's Sidara still has until 5pm on 17 April to announce a firm intention to make an offer for Wood in accordance with the takeover rules. There remains no certainty that an offer will be made.
ii view:
Headquartered in Aberdeen, Wood operates across the three divisions of projects, such as laying new pipelines; operations, which maintains customer facilities; and engineering consultancy. Projects and Operations each generated just over 40% of revenues during 2023, with Consultancy Services the balance. Geographically, the USA generated most sales in 2023 at 24%. Other major contributors included the UK at 13%, Canada 6%, Australia 5% and Saudi Arabia at 4%.
For investors, expected prior year accounting adjustments could hinder current and future financial performance. Wood Group shares could be suspended from trading for an unknown period of time. Expected year-end group net debt of $690 million (£531 million) compares to a current stock market value of £188 million. Most of the Group's debt facilities mature in October 2026. Sidara could decide not to make an offer for Wood Group, while the uncertain economic outlook continues to cast a shadow over energy demand and therefore required infrastructure spend.
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More favourably, an agreed takeover bid for Wood Group could yet be made. A refreshed strategy includes simplifying the business and targeting cost savings. Both geographical and business diversity exist. A $6.2 billion order book at 31 December 2024 was up from $5.4 billion in late September, while management remain confident that Deloitte’s findings will have no material impact on the company's ability to generate cash in the future.
For now, corrective management actions continue, while there could also be a takeover, if at an unknown price. However, significant uncertainties, including the possible suspension of share trading, remain an overhang, which means Wood Group is still a very speculative investment only for those with a high tolerance for risk.
Positives:
- Pursuing energy transition contracts
- Subject to a possible takeover
Negatives:
- Deloitte accounting review
- Underlying customer investment can be volatile and uncertain
The average rating of stock market analysts:
Strong hold
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