US Edition Wood Group
267¼p -1¾
Questor says BUY
Oil services company Wood Group confirmed this week that it was trading in line with expectations. Questor believes that the company is well placed for long-term growth and the shares remain a buy.
The company's update was succinct, but the company said that not much had changed since it updated the market in May. At that time it issued a cautious but optimistic statement.
Wood accepted that some longer-term projects had been experiencing delays. However, Questor feels that this is already in the price.
Alan Semple, the company's finance director, told Bloomberg that the company was now on the hunt for acquisitions, focusing on engineering and production services. Mr Semple said that much of the $950m (£554m) of debt re-arranged earlier this year was available to fund "strategic purchases".
The company has already made a few buys this year – while asset prices are low – including Australian group Proteus Global Solutions.
This is a good move. As Questor has said on a number of occasions, companies that can continue to invest throughout the downturn will come out stronger on the other side. However, the market trough for Wood is likely to be next year, not 2009.
At its annual meeting in May, Ian Wood, the chairman, said that spending on exploration and production was likely to fall 10pc to 15pc this year, with the North American gas market and the Canadian oil sands hit hard.
However, the long-term outlook for the company is solid. Once the global economy gets moving again, the world's thirst for energy will ensure that its services are in demand.
The shares are trading on a December 2009 earnings multiple of 10.6 times. Based on next year's earnings forecasts, when the trough in earnings should be reached, the shares are on a prospective multiple of 11.8 times, which is not too stretched. The shares are only yielding 2pc, however. Based on the long-term prospects for the company, shares in Wood, which are up 37pc since their recommendation on December 23 last year, remain a buy.
Cineworld
146¾p -1¼
Questor says BUY
This week's update from Cineworld was strong, as blockbuster cinema releases such as Slumdog Millionaire, X-Men Origins and Transformers 2 lured people out to the movies. With summer releases such as Harry Potter and The Half-Blood Prince and Johnny Depp's Public Enemies still to come, it looks like the trend will continue.
Box-office sales in the first half of the year rose 17.9pc, but "other income" fell 26.3pc. This figure includes screen advertising, so it is hardly surprising that it was down, given the current economic backdrop.
However, part of the slump was down to the expiration of the Carlton screen advertising minimum guarantee payment, which was in place for part of the first quarter of 2008. It expired in February last year.
Questor continues to believe that the film business will be a beneficiary of the recession as it is a relatively cheap night out. The company also has chances to expand because Sumner Redstone, the US media magnate, has put 21 UK cinemas up for sale in an attempt to reduce debt. Of course, Questor would not like to see Cineworld overpay.
Cineworld is likely to fall foul of antitrust authorities if it attempts to buy the whole chain, but it is believed that the group is bidding for selected cinemas. Second-round bids are due to be placed this month.
The shares were recommended on March 15 at 120p and they are now up 25pc. They are trading on a December 2009 earnings multiple of 10 and are yielding a very impressive 6.5pc. This rating does not look too low and the yield is substantial. Shares in Cineworld remain a buy.
International Power
244p -9¾
Questor says BUY
Warren Buffett has been snapping up shares in utility companies. Questor thinks you should too – and grab the good yield currently offered by the sector.
To some extent, utilities have been left behind by this year's rally and the sector looks like good value – especially for income seekers.
This week, International Power unveiled the disposal of its Czech business, which will help to cut debt. The company had found the Czech market very competitive and this move had been flagged.
The group unveiled the sale of its entire portfolio of assets in the country to investment firm J&T. The company got a good price and expects to make profit of around £380m on the deal. This is higher than the market expected and the news was well received.
There have been worries about $1bn of debt which is due next year, but these concerns should now ease. Questor is confident that refinancing will be easy to achieve.
Questor recommended buying the shares at 220¾p in December as a dividend play and once again in March when they stood at 193¾p. The shares are now 11pc ahead of their initial recommendation, but they are still yielding 4.9pc.
The shares are trading on a December 2009 earnings multiple of 8.5 times and remain a buy for income seekers.