Wellstream success fails to impress City
Apr 3 2008 by Graeme King, The Journal
OIL and gas pipeline maker Wellstream has reported a stunning 64% increase in profits but then found the City was not impressed and saw its share price drop 8% to 1289p.
The Newcastle headquartered company enjoyed a phenomenal year of success in 2007, floating on the stock exchange, launching a new joint venture, and commissioning a new factory in Brazil.
The company has won work from such global names as Petrobras, BHP Billiton, Devon Energy and Anadarko, adding up to an order backlog worth some £335.9m.
But the company appears to have suffered for its stellar growth, with analysts turning their noses up at the slightest hint of more normal performance levels.
With Wellstream having consistently delivered increases in output, and managed to increase its prices, a projected steadying of the growth rate seems to have irked some City watchers.
Chief executive Gordon Chapman said he was unconcerned by yesterday’s drop in share price which earlier in the day had fallen by 13%.
He said: “We can’t control the markets – all we can do is consistently produce good results for the shareholders and fulfil all our commitments. Our results will then speak for themselves – there’s no point in losing sleep over the share price.”
Another key milestone for Wellstream this year has been a commitment to extending its Newcastle headquarters. The company’s factory on Wincomblee Road in Walker is currently being extended to complement the new production facilities in Brazil.
Wellstream now employs around 570 workers at its Walker facility, up from around 500 at this time last year, and Mr Chapman expects to add another 50 staff to the payroll as Wellstream finishes its factory extension this year.
The chief executive said: “Overall, we have recruited and trained 500 people in the last two years, getting through 1,000 modules of training, which is quite a good undertaking. And now we have a good story to tell, that influences the quality of people we are hiring. We are now focused on replenishing the company from within – building our ‘bench strength’, so the succession will come internally.
“Using home grown talent is by far the more rewarding way to build a company.”
Mr Chapman said Wellstream’s joint venture with installation company Sea Trucks, known as Seastream, was making progress and having completed one small contract in Brazil, the business was being aggressively marketed to seek more work.
Joanna Craig, of Oriel Securities, said: “I think the issue today was that shares were starting to look a little expensive, and people had been expecting upgrades.
“However, 2007 performance was very good, and the company has done brilliantly up to this point.
“Today was purely about outlook, with the statement being less bullish than expected.”
Pipeline company's profits soar
Wellstream - year to December 31, 2007
Showing 2007, 2006 and % change
Turnover: £266.8m, £147.2, +81%
Pre-tax profits: £41.7m, £25.4m, +64%
Backlog*: £335.9m, £226.8m, +48%
Dividend - none proposed, but Wellstream does intend paying a dividend for 2008, if sufficient reserves are generated.
*Wellstream defines backlog as revenue expected from contracts already signed, or expected to be signed.
