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WYG order book at its highest level in recent years as company eyes stronger second half

After a couple of profit warnings this year, shareholders will be breathing a sigh of relief that interims - though disappointing - were in line with lowered expectations
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The new management team has much work to do but is encouraged by a burgeoning order book

Project management consultancy WYG PLC (LON:WYG) continues to expect a stronger second half after an admittedly disappointing first half of the current financial year.

Shareholders will be breathing a sigh of relief as Tuesday's interim results contained no sign of another profit warning following the downgrade to full-year guidance issued last month.

READ: WYG lowers full-year guidance, but medium-to-long-term opportunity remains undiminished, finnCap says

Management said the underlying business remained robust and was expected to return to a growth trajectory in the medium term.

This confidence was underpinned by the group's order book, regarded by management as the group's key lead indicator, which had risen to its highest level in recent years at £170mln, up 17% on the level six months earlier.

The firm's International Development business is performing broadly in line with expectations but as previously flagged, the Consultancy Services arm is experiencing lower-than-anticipated trading volumes.

Revenue in the six months to the end of September rose 3.8% to £76.2mln from £73.5mln the year before.

The Consultancy Services business stream, which accounts for around three-quarters of the group's revenue, saw revenue dip slightly to £56.9mln from £57.3mln the previous year.

The International Development business generated a 19.5% increase in revenue to £19.3mln from £16.1mln.

READ: WYG to come on strong in second half as slow starts to new contracts  hamper near-term performance

Adjusted operating profit before tax declined to £1.0mln from £2.8mln in the corresponding period of 2016, while a provision of £2.45mln for legacy contract claims from discontinued businesses meant the company made a loss before tax of £2.8mln, versus a profit the year before of £0.8mln.

The interim dividend was maintained at 0.6p.

Net debt at the end of the reporting period had deepened to £10.1mln from £4.9mln a year earlier but is expected to narrow to around £6mln-£7mln by the year-end.

Stronger second half expected

“We continue to anticipate a stronger second half, consistent with our historical seasonal trading pattern and our guidance in November,” said Douglas McCormick, the chief executive officer of WYG.

“We remain confident that the underlying business is robust and that, supported by a strong order book, we are taking the correct steps to return to a growth trajectory. Importantly, revenue is up on the comparative period and we are seeing major projects in both our principal business streams start to mobilise, albeit some months later than originally expected,” he added.

"Having met a number of major clients, visited almost all our offices and spoken with several hundred of our highly-skilled staff, I am reassured that WYG is a fundamentally sound business and that we have a strong platform from which to grow in the medium term," McCormack said.

Broker finnCap admitted that the results were poor and the immediate outlook remains difficult, but believes the long-term market potential remains undiminished supported by continuing or increasing investment in infrastructure, urban development and connected cities and fragile states.

“It will take time to stabilise the business (although management has commented that major projects are starting to mobilise), and pay down debt, but the significant fall in the share price assumes this. The first step is to evidence FY18 [fiscal 2018] is the bottom for profits and cash flow,”said analyst Guy Hewett, who rates the shares a 'buy'.

Hewett's target price is 50p; WYG shares were up 2.4% at 39.41p in lunchtime trading.

WYG is a leader in planning, environment and transport consultancy in the UK that works as a trusted advisor to businesses and organisations.

The company says it provides a 'truly differentiated service' rather than a commoditised product.

In Europe, the company does a lot of EU-funded work, while outside of that WYG works hand-in-glove with the British Government on projects in politically fragile emerging countries.

WYG’s expertise in providing societal improvement programmes in some of the world’s harsher economic environments is proving to be a key differentiating factor for the consultancy, leading it to win business in places such as Turkey, Jordan, Libya and Syria.

--- adds broker comment and share price ---


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