Energy services business Wood Group (WG.) is up 4.8% to 438p on a positive first half trading update which reveals a material improvement in margins.

The company’s robust update comes a day after sector peer Petrofac (PFC) soured sentiment with its own first half update.

Since its merger with Amec Foster Wheeler, Wood Group is a more diversified business with exposure to areas like renewables and nuclear energy alongside its more traditional oil and gas focus.

HALF YEAR NUMBERS

Revenue for the first six months of 2019 is flat year-on-year but the improved profitability, driven by a strong performance in its Asset Solutions EAAA and Environment & Infrastructure Solutions businesses and ongoing synergies from the Amec deal, sees earnings before interest, tax, depreciation and amortisation (EBITDA) increase by 7% with operating profits before exceptionals up by 25%.

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Guidance is left unchanged despite the impact of disposals completed in the first half, which contributed EBITDA of more than $20m in 2018.

Revenue growth in the region of 5% weighted to the second half, together with the benefit of cost synergies of around $60m, is expected to lead to growth in adjusted EBITDA in line with market expectations.

DEBT QUESTION REMAINS

One area which remains a sticking point with the market and had weighed on the shares heading into today’s announcement, is the sluggish delivery of its debt reduction plan. Net debt is expected to be more or less unchanged on its 2018 year end level by the end of June at $1.6bn.

Cantor Fitzgerald says the ‘plan to deliver growth and cash generation on the year appears to be on track’.

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Issue Date: 26 Jun 2019