Plexus coping well

It's not immune from the impact of plunging oil prices, but Plexus Holdings' CFO Graham Stevens reckons the company's focus on shallow offshore drilling makes it "resilient" in the current rout, which has more than halved the price of Brent crude. True, the group's share price has suffered - it's down 39% since June - but house broker Cenkos Securities reckons we’re now at an attractive entry opportunity.

Plexus, which has developed a clever wellhead system, reckons fracking and long-term projects in inhospitable places like the Arctic are carrying the brunt of the sector sell-off. But its focusing on shallow offshore fields should cope better, claims the company, and chairman Jeff Thrall predicts a medium term oil price of $75-$85 a barrel.

Revenue in the six months to December rose 6.8% to £13.5 million, generating gross profit of £9.1 million, up 5%, and profit after tax of just under £2 million, up nearly a third. Earnings per share (EPS) rallied to 2.32p, up a quarter, although doubling the size of its HQ and investing in research and development crimped its cash pile.

Capex totalled £5.4 million in the first six months and management reckon the budget is going to remain stable in the next financial year.

Attempting to make a dent in the $4.5 billion global wellhead market, a number of contracts were signed in the period, including a £1.9 million deal with Det Norske Oljeselskap and a £1.9 million deal with BG Group. Since the beginning of the year, deals worth around £1.5 million have been agreed. Its international expansion also gathered pace with progress on its Asian business hub strategy.

Plexus's main product is its POS-GRIP wellhead equipment, which competes well on price against large sub-sea wellhead rivals, Stevens told Interactive Investor. This is the group's hurdle, competing against five "massive" companies. But its Joint Industry Project (JIP) with the likes of BP, Total and ENI to create a superior wellhead is promising.

"We tick the disruptive technology box. We are a bit like the King's new clothes at the back of the room saying 'things aren't as good as people like to think they are'. But it's only with us coming along that you can actually raise that bar."

Ian McInally, an analyst at Cenkos, reckons Plexus's high valuation is justified. At 198p, the shares are trading on about 33 times forward earnings.

"Despite E&P market conditions, the solid progress made during H1 2014 gives us confidence in our full-year forecasts that we leave unchanged. We reiterate that we have included no contributions from the two JIPs (High Pressure/High Temperature (HP/HT) Tieback product and HPHT subsea wellhead). We view the de-rating over the last nine months (in line with Tier 1 wellhead suppliers) as providing an attractive entry point, offering investors exposure to a superior technology standard in wellhead engineering protected by patents extending over the next two decades."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.