Is This Stock Oversold After a 37% Crash in a Single Day?
A look into John Wood PLC (LON: WG)
Dear reader,
This week so far has been a battle in the stock market, and some stock prices appear to have fallen more than they should have. At the beginning of the week, shareholders of John Wood PLC saw their holdings crash by 37% in a single day.
Investors might have feared the worst. However, with a little digging and reading the news, it becomes clear that the drop was due to the fallout of a buyout.
Looking into this and the recent financial results of John Wood PLC, an argument can be made that the stock was oversold and now looks cheap!
Sidara Withdraws Offer for John Wood Group Amid Market Uncertainty and Geopolitical Risks
Background
Dar Al-Handasah Consultants Shair and Partners Holdings Ltd, known as Sidara, has decided not to pursue a firm offer for John Wood Group PLC. The announcement cites increased geopolitical risks and financial market instability as the primary reasons for this decision.
Market Impact
Following the announcement, John Wood Group’s shares dropped sharply by 37%, opening at 124 pence, the lowest since October 2022. This decline is part of a broader market downturn driven by weak US economic data and recession fears. The FTSE 250 fell by 2.9%, and the FTSE 100 by 2.3%, amid a global market slump.
Geopolitical Considerations
The geopolitical instability, especially in the Middle East, significantly influences Sidara’s decision. Recent escalations between Israel and Hezbollah raise concerns about potential conflict spillover into Lebanon, where Sidara is headquartered. John Wood Group’s substantial revenue exposure in the Middle East and Africa (18%) compounds these risks.
*John Wood Share Price 1 yr
Financial Performance and Strategic Outlook of John Wood Group
Despite the turbulence surrounding the acquisition bid, John Wood Group has shown resilience and a positive financial trajectory, as reflected in its half-year 2024 (HY24) financial highlights.
Financial Highlights
Adjusted EBITDA: The company reported an adjusted EBITDA of approximately $210 million, marking a 4% increase. This growth was driven by margin expansion, with the adjusted EBITDA margin rising to around 7.4% from 6.8% the previous year. Improved pricing, reduced pass-through activity, and strong performance in operations contributed to this margin improvement.
Revenue: Revenue for HY24 stood at approximately $2.8 billion, a decrease of around 6%. This decline was anticipated due to the company's strategic shift away from EPC (Engineering, Procurement, and Construction) work, reduced pass-through activities, and continued weakness in the minerals business. Despite this, operations showed good growth.
Order Book: The order book increased by 2% compared to June 2023, reaching approximately $6.1 billion, with sustainable solutions accounting for over 40% of the pipeline.
Simplification Programme: The ongoing simplification programme has secured around $25 million in annualized savings, aiming for total savings of approximately $60 million by 2025.
Outlook for 2024 and 2025
2024 Outlook: The company expects high single-digit growth in adjusted EBITDA, with performance weighted towards the second half of the year due to typical business seasonality and the phased benefits of the simplification program. Operating cash flow is also projected to improve, partly through enhanced cash management. Net debt at the end of 2024 is expected to remain at similar levels to the end of 2023, post proceeds from planned disposals.
2025 Outlook: John Wood Group anticipates EBITDA growth in 2025 to exceed medium-term targets, driven by the simplification program's benefits and improved cash conversion, resulting in significant free cash flow.
The resilience and strategic focus of John Wood Group offer a measure of stability and growth potential despite the challenging environment.
Conclusion
Sidara’s decision underscores the complexity and risk inherent in cross-border acquisitions amid geopolitical and market uncertainties. For investors, the resilience and strategic focus of John Wood Group offer a measure of stability and growth potential despite the challenging environment. The financial outlook and ongoing strategic initiatives highlight the company’s commitment to long-term value creation.
Would you buy John Wood plc?
Thanks for reading,
Ollz