Plexus plunges after major profit warning

Shares in Plexus Holdings sank like a stone after the oil drilling innovator warned profits would be "very significantly" below forecasts after a major slowdown in customers' planned activity, mainly in the North Sea.

With projects being delayed, postponed or cancelled, Plexus said it now expects first-half revenues for the period to 31 December to fall at least 48% to below £7m, with second half sales predicted to be down a further 20%.

"To place the revenue reduction in perspective, the last quarter sales for calendar year 2015 were circa 50% below those of the previous quarter with the fall off accelerating in November and December 2015."

Based on expectations of an oil price recovery, management anticipate sales will stabilise going into the 2017 financial year as exploration drilling activity picks up again.

Plexus, which in the year to last June had enjoyed record levels of revenue, EBITDA and profit as its revolutionary POS-GRIP method of well-head engineering gained further traction in the oil drilling market, said it was now taking measures to conserve cash, slashing capital, operational and personnel expenditure to ride out this period in the oil market cycle.

However, as R&D spending remains crucial, management are mulling the best allocation of resources and their confidence in the product range is undimmed due to its ability to reduce costs and increase safety in the drilling industry, with discussions continuing over a number of potentially significant projects.

Indeed, along with the profit warning, Plexus also announced a new contract win with Premier Oil, following last week’s win offshore Oman.

Broker Cenkos said the severity of the update was disappointing but clearly exacerbated by the dramatic fall in the oil price to under $30.

Revenue forecasts for 2016 were therefore slashed to £12.1m from £26.1m, and with costs affected too, the estimate for EBITDA falls to a £2.1m loss, versus £6m before.

"At this juncture it is bold to be bullish but we are convinced the long term fundamentals of Plexus and POS-GRIP IP remain intact," analyst Ian McInally added, pointing to the Premier Oil and Oman contracts as a reminder of the "significant competitive advantage" the wellhead technology has.

"As we commented last week the launch of the new subsea Python wellhead has been overshadowed by market conditions but it is important to highlight, even in a recovering market, the focus on costs savings will remain at the forefront of the industry."

Plexus shares were down 40% to 74.18p at 1030 GMT on Monday.