Should You Buy Wood Group?


LONDON -- Oil equipment and services play Wood Group is, in my opinion, a great way to latch on to attractive earnings growth at a decent price.

The firm announced within its December's interims that the outlook for energy markets remained solid, and that it is on course to deliver good growth this year in line with forecasts. I expect the shares to remain on an uptrend over the longer term as activity ratchets up.

Engineering a bright future
In particular, Wood Group's Engineering arm should underpin the group's stellar earnings potential moving forwards. The company expects earnings before interest, taxes and amortization from the division to leap 30% in 2012. Although Wood Group expects some weakness from its Canadian oil sands operation in 2013, strength in subsea and pipelines, and upstream, continues to push higher.

Elsewhere, the group's PSN division is also marching higher on the back of greater activity in the North Sea and North America. Strong shale gas activity in the U.S. is helping to drive performance in this area, and in October the company bought Mitchell's Oil Field Services to boost its American exposure.

Wood Group provides investors reassurance through an ability to keep contract wins rolling. Indeed, the firm announced in mid-January that it had secured a beefy deal for the detailed engineering and design of an offshore oil and gas production complex for Det Norske in the North Sea.

This follows a $50 million contract signed in the previous month with Nexen Petroleum U.K. to hook-up and commission the Golden Eagle field, also in the North Sea.

Decent earnings growth to keep on rolling
City analysts expect earnings per share to continue surging higher in coming years, albeit at a slower pace than previously recorded. Growth of 29% to 52 pence in 2012 -- results for which are due on Tuesday, March 5 -- is expected to be followed by a 19% advance this year to 62 pence, before rising 16% to 72 pence in 2014.

This striding earnings growth is set to drive better investor value. A P/E ratio of 15.3 for last year is scheduled to fall to 12.9 and 11.1 for 2013 and 2014 respectively, according to City brokers. The excellent value-for-money rating is also borne out in a peachy price/earnings to growth ratio of 0.7 for this year and next -- a reading below one is generally considered to show an undervaluation.

Drill for riches with the Fool
Wood Group comes attached with great growth potential, but there are also other great investment opportunities out there waiting to be realized within the same sector. However, drilling for oil and mining for minerals is often a hit or miss business where the timing, and indeed quantities, of potential payloads are extremely unpredictable.

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