The mood music from John Wood Group on its dividend remains bullish even as it warns of the likelihood of tough trading conditions continuing.
A second successive 10 per cent increase in the payment, to 33 cents for 2016, is not to be sniffed at especially during a time when revenue and profit have plunged.
However, the days of double-digit percentage rises appear to be gone for the time being.
Having committed to that level of increase in 2014 the company has now amended its promise to “pursue a progressive dividend policy going forward, taking into account cashflows and earnings”.
Robin Watson, chief executive, said the change was the result of regular and lengthy internal discussions. Mr Watson said after two years of declining revenue and profit it was time to “punctuate” the commitment made before the current downturn.
“We decided that was the right thing to do. It gets us back in a yield position that is similar to our competitive group which is what we wanted to address in the first place,” he said. “It will be progressive but it will be tied to our earnings, cash, our balance sheet and other use of capital.”
The 2016 numbers were close to analyst forecasts with net debt, at $331 million, slightly better than expected.
While Wood Group has continued to win new work and renew existing contracts it is no secret that margins are under pressure as oil operators squeeze service providers for as much efficiency as possible. The full impact of that has yet to come through with only a 0.6 per cent fall last year.
Still pre-tax profit after exceptional items was only$66 million, compared with $138.6 million in 2015, with revenue down almost 16 per cent to $4.9 billion. The announcement sent the company’s shares tumbling sharply lower yesterday.
Close watchers of the sector have mixed feelings on what the market conditions, where services firms will lag any recovery in exploration and production, will mean for Wood.
Morgan Stanley said the consensus was for modest dividend growth to 34.4 cents for 2017, rising to almost 34.8 cents in 2018. But Malcolm Graham-Wood, of Hydrocarbon Capital, said anyone with a holding in Wood “should prepare for a shock unless business picks up dramatically in the first half this year”.
My advice Hold
Why It will still be paying a healthy dividend even if increases may be muted
Intercontinental Hotels
An investor pondering the merits of Intercontinental Hotels Group could do worse than compare yesterday’s full-year results with those of Millennium & Copthorne Hotels last week.
While M&C reported a dismal set of numbers after a 70 per cent slump in fourth-quarter profits, IHG delivered a solid 2016 despite a challenging backdrop, with underlying revenues up 4.6 per cent and operating profits up 9.5 per cent.
M&C’s problem is that it lacks the scale, systems or brand strength of its bigger rival — neither of its own brands really cuts the mustard — while it also owns a big chunk of its own hotel real estate.
True, many of these owned hotels are in gateway cities such as London, New York and Singapore, and therefore have a significant asset value but they are also hugely capital intensive.
IHG has gone the other way, shedding its assets and transforming itself into an asset-light brand owner and manager.
Since its demerger from Mitchells & Butlers in 2003, it has sold off $8 billion of assets, crystallising the return of more than $12 billion to shareholders. Yesterday’s latest $400 million special dividend, significant in being the first handout to be funded from underlying cash generation rather than disposals, shows that IHG does not need to sell assets to reward investors (the ordinary dividend is also up 11 per cent).
There is every prospect that such returns should become a regular fixture.
My advice Hold
Why Shares at all-time high but cash returns attractive
Mediclinic International
A nasty bug appears to have been picked up in the Middle East by Mediclinic.
The private healthcare group issued its second profit warning in six months yesterday with problems in Abu Dhabi, the market it expanded into through the reverse takeover of Al Noor a year ago, continuing to plague the company.
Mediclinic insists it is making good progress in the integration of Al Noor and remains on course to deliver synergies ahead of those earmarked after the acquisition. However, it continues to wrestle with an exodus of doctors from the business since the takeover, hitting patient and service volumes and increasing operating expenses.
Mediclinic, using experience from its established recruitment team in Dubai, has appointed 90 new doctors in the region since April and a further 60 are being processed.
The issue has been compounded by the fallout from the introduction of a new payment system in July by the authorities, which has also knocked patient numbers.
With a lack of clarity surrounding the recovery in the Middle East it may be prudent to steer clear of the shares.
My advice Avoid
Why It is unclear whether problems have bottomed out
And finally . . .
A day after his bid for Marmite and Unilever collapsed, Warren Buffett’s appetite for deal-making was clear when he snapped up Popeyes Louisiana Chicken. At $1.8 billion, the US restaurant chain is a far lighter snack than Unilever, which would have cost him nearly 100 times more. By merging it with Burger King and Tim Hortons, which he controls through Restaurant Brands, Mr Buffett can also trim costs. The attraction may be an expansion of Popeyes into China and other emerging markets. Its shares rose by 19.1 per cent to $78.73.
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