Medserv PLC (MT:MDS)'s trading update has highlighted project delays that will see H217 miss expectations. A lower Q4 drilling contribution from Cyprus and activity in Iraq falling off Q3 levels prompt us to reduce our FY17 forecasts. However, contracted projects underpin our FY18 estimates and we leave them unchanged.
Q4 trading to miss expectations
Medserv’s trading statement indicates H217 earnings will be lower than forecast due to delays in both divisions. Within Integrated Logistics Support Services (ILSS), drilling activity is expected to begin in Cyprus from mid-December, instead of a full quarter’s contribution. While delays here reduce the project contribution in FY17, the company has given greater clarity over the number of wells expected to be drilled within the next 12 months.
Meanwhile, in the Oil Country Tubular Goods (OCTG) division, the strong pick-up in activity seen in Iraq in Q3 did not continue into Q4, as the IOCs negotiate next steps. We still expect inspection and machine shop demand to grow in the region, supporting FY18 forecasts. We lower our FY17 group revenue forecast to €28.2m from €30.3m, and increase our pre-tax loss forecast to €2.8m from €2.3m. We leave our FY18 estimates unchanged as we view these as delays, not reduced demand.
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