Shares in energy services group John Wood are +4.6% in early morning trading in spite of the company reporting a loss, with half-year earnings falling by 1.5% due to $33m in exceptional cash costs to deliver M&A integration synergies and restructuring, as well as non-cash impairment with regards to EthosEnergy.

Instead, investors were preferring to focus on the positives, like the fact that earnings were at the top of the guidance range. Or that the M&A integration programme is proceeding ahead of schedule and is expected to garner over $50m in FY cost synergies, with 3-year synergy target improved by 23% to $210m, at no additional costs to receive those cost savings. In the short term, the robust $10.6bn order book gave John Wood a clear outlook for the rest of the year, with ~85% of FY revenues already delivered or secured.

Oil support companies like John Wood Group are benefiting from the recent rally in global energy markets, as oil prices are advancing since the beginning of the year on the back of supply-side worries (US/Iran confrontation, Venezuela’s problematic production), though international oil markers are off May’s $80/bbl highs after major oil-producing nations stepped in to ease voluntary production cuts to avoid market overheating.

And with the oil & gas market responsible for ~60% of John Wood’s revenue, continued increase in upstream spending is expected to support demand for company’s services.  Good FY revenue visibility and unchanged guidance. Improved long-term integration cost synergies. Supportive market conditions. Loss clearly attributable to one-off charges. The balance of positives and negatives is clearly coming in John Wood’s favour, hence why investors are bullish on the stock and rewarding the company this morning.

Artjom Hatsaturjants, Research Analyst, 21 August 2018