Should I Buy John Wood Group?

LONDON -- International energy services company John Wood Group  (LSE: WG  ) is a choppy little performer. Up 120% over three years, but just 6% over two years. In the longer run, however, it has pumped out plenty of shareholder value, rising 400% in 10 years. Recent growth has been steady, with the share rising 27% over the past 12 months. Should I buy it?

Wood Group enjoyed a fat double-digit 2012. Revenue from continuing operations rose 20% to $6.8 billion. EBITDA rose 35% to $461 million. Profit from continuing operations before tax and exceptional items rose 43% to almost $363 million. Adjusted diluted earnings per share (EPS) rose 42% to 85.2 cents. Total dividend was hiked 26% to 17 cents per share. No wonder recent share price growth has been strong. Wood Group has benefited from its exposure to oil-producing U.S. shale regions, and anticipates progress across all three of its divisions in 2013.

Oh man!
The good news was upheld in a management statement in mid-May, which said performances at Wood Group Engineering and Wood Group PSN were in line with expectations. Wood Group GTS is behind plan, but this should recover over the course of the year. Full-year performance should be in line with expectations. The balance sheet is strong.

Wood Group PSN has been performing well in the North Sea, securing extensions to major contracts with Total and CNR. PSN has won a brace of lucrative extensions in recent days, with Hummingbird Spirit and Hess Corporation, vindicating management's decision to buy it in 2010. It did lose £20 million on a contract in Oman last year, but those losses are now reducing, and financial performance should improve significantly.

Saint John Wood
Wood Group was trading at around 20 times earnings a couple of weeks ago, but the recent market sell-off has trimmed that to 17.7. It yields just 1.7% a year, but if management keeps serving up healthy double-digit hikes, that may improve. Given ultra-generous 4.2 times cover, there is scope for that. Other numbers also look attractive. Forecast EPS growth is 37% this calendar year and 13% in 2014. PEG is undemanding at just 0.2. Wood Group was lifted last week after Morgan Stanley upgraded it to overweight, praising its "asset light engineering business model, which we expect to continue delivering above cost of capital returns in the mid-teens out to 2015". We'll learn more after the group's next trading update on June 26. But if another market panic trims that valuation, it could start to look a tempting buy.

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