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Plexus Holdings: THE INVESTMENT CASE

Plexus’s restructuring leaves it well set for future growth

The challenging oil and gas markets have forced Plexus to make fundamental changes to its business, changes which it says have made it a stronger company than when the downturn set in
two oil rigs in the North Sea
INVESTMENT OVERVIEW: POS The Big Picture
The North Sea has endured the lowest level of exploration on record over the past year

Plexus Holdings PLC (LON:POS) has reassured investors that changes it has been forced to make over the past year will see it emerge from the downturn in oil and gas markets as a stronger company.

Continuing low oil prices have resulted in global exploration drilling activities fall to 60 year lows, with the North Sea – where Plexus mainly operates – reporting the lowest levels ever recorded.

Plexus, as an oil and gas engineering services business, was obviously hit hard by this with revenues falling to £11.23mln (2015: £28.5mln) for the 12 months to end June, but believes the enforced changes will make it a stronger company going forward.

It slashed its overheads by almost 50% to £7.4mln from £14mln in response to the lower revenues, mainly through reduced R&D spending and nearly halving its workforce.

It also focused on diversifying its revenues away from its traditional Scottish and European North Sea stomping grounds, an area in which exploration was hit particularly hard by the downturn.

It signed licence agreements with firm in China and Russia to help expand its offering to other markets, while it also launched the Python Subsea Wellhead towards the end of last year as it looks to tap into the “multi-billion dollar” subsea market sector.

“Thanks to the steps we have taken over the course of the year, we believe Plexus today is in a stronger position than it was when the downturn set in,” said chief executive Ben van Bilderbeek.

“When activity recovers I am confident that Plexus will more than make up lost ground.” 

Analysts have indicated that oil supply – and as a result, exploration – has to rise in the coming months and years or there will be a global shortfall of 4.5mln barrels of oil per day.

As a result, the seeds for the next upturn have already been sowed, Plexus said.

Funding

Another positive for the firm during the period was the strengthening of its balance sheet, after it completed several placings, with van Bilderbeek investing £200,000 of his own cash into the business.

The fundraises were priced near to market levels and not at a significant discount, which many in the industry have had to do over the past year, which Plexus hailed as a “testament to the strength of our technology”.

The extra cash has allowed Plexus to fast track the development of its unique POS-GRIP well-head equipment for the Russian market.

Its technology

Invented and developed by CEO van Bilderbeek and his team, POS-GRIP is Plexus’ primary technology.

It is designed to reduce the chance of leakage and the danger of blow-outs, where oil or gas bursts out of pipes, following an unexpected rise in pressure.

The firm has supplied its equipment to several blue chip operators, including BP plc (LON:BP.), Maersk, Total (LON:TTA) and Statoil.

Because of installation time savings it confers, the technology might shave as many as 100 hours from the drilling programme.

On deep water applications and some high pressure, high temperature operations daily operating costs can run to US$800,000 to US$1mln a day.

“It has tremendous payback as well as being safer,” said Van Bilderbeek.

“We are the only company that can claim to have a seal in the well-head that is as good as all the other connections that go into the ground.”

In the aftermath of the BP Deepwater Horizon spill in the Gulf of Mexico, Plexus developed, with the support of the oil majors, a new subsea wellhead design standard adaptation of POS-GRIP that could help avoid a repeat of that environmental disaster.

Plexus rents out its technology rather than selling, and once the market rights itself, it estimates that it has assets capable of producing rental revenues of £40mln if fully used.

The share price

As you’d expect, the share price took a beating following the well-documented oil price slump at the end of last year, although it is on the road to recovery.

The stock has added 50% since it hit its lows back in February, although if you look back only a couple of years or so, you’ll see it’s still got a way to go to hit the highs of 2014.

It currently sits around the 60p mark, giving it a market capitalisation of £65mln or so.



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Plexus Holdings Timeline

Newswire
February 02 2017

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