Look Beyond Plexus Rating - Shares Magazine

Published in Shares Magazine – 31st October 2013

Writer - Tom Sieber


Counter is expensive but long-term potential significant.

While it may be trading on a rich rating investors should focus on the potential of Plexus (POS:AIM) joint industry projects (JIP’s). A progressive dividend policy adds to the other attractions of the wellhead technology firm which generates quality earnings from its existing rental business.

Based on house broker Cenkos’ forecast earnings per share for the June 2014 financial year of 4.2 p the £219 million cap trades on a lofty price/earnings ratio of 61.6, while a predicted 1.2p dividend implies a modest prospective yield of 0.5% but investors should take a longer-term view.

The equipment which Plexus rents out is based on its proprietary POS-GRIP technology and is principally used in conjunction with jack-up rigs on high pressure/high temperature (HP/HT) wells. In response to growing demand here the group has added substantially to its rental inventory. As a result capital expenditure is up 76.2% year-on-year to £8.1 million in the 12 months to 30 June. The investment drive has been largely funded out of net operating cash-flow which totalled £7.8 million for the period, so these costs will not repeat.

The eventual plan is to market the technology in the larger international production wellhead and subsea markets. A planned new class of system, offering a safer alternative to current subsea wellheads, is being developed in partnership with the industry as part of a JIP.

The new system has been given the moniker POS-GRIP HGSS® and the roster of companies involved includes ENI (ENI:IM), Royal Dutch Shell (RDSB), Total (FP:PAR) and Tullow Oil (TLW). An initial prototype costing up to £2million is expected by the third quarter of next year. Any intellectual property created through the JIP will be owned by Plexus and Cenkos puts the size of the addressable market here at £5billion.

Another initiative, being pursued alongside Maersk (MAERSK:DC), is the use of the firms technology to convert exploration and pre-drilled production wells into either subsea of platform-producing wells. The company believes this could lead to savings for exploration firms of between £50 million and £200 million each individual well.

Shares Says:

Undoubtedly expensive, but the rating reflects the long-term growth prospects.