Budget cutbacks hit oil mapping company

Raymond Wolfson, Chief Executive Officer, of Getech
Raymond Wolfson, Chief Executive Officer, of Getech
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Oil exploration firm Getech reported a sharp fall in first half profits after its big oil company customers cut back on spending.

The Leeds-based company said it is optimistic that the budget cuts are temporary and said it has started the second half with a substantial pipeline of sales opportunities.

Chairman Stuart Paton said feedback from meetings early in 2014 suggest that clients are interested in its major products and that they now have the budget to spend money.

There were fears that oil prices would fall this year, but Dr Paton said this doesn’t appear to be the case.

“The oil price is currently above the corresponding prices last year and we do not see signs of it weakening,” he said.

“We’re optimistic that the trading performance in the first half represented a short-term market related issue and we’re confident about our medium and longer term prospects.”

Getech reported pre-tax profits of £233,000 for the six months to the end of January, down from £1.4m last time.

Revenue fell 22 per cent to £3.1m. The board is recommending a dividend of 0.44p a share, up from 0.4p a share last year, and said cash levels are strong with gross cash of £4.1m.

Analyst Eric Burns, at house broker WH Ireland, said: “The company notes a strong second half sales pipeline and a freeing up of customer budgets which indicates that the disappointing first half performance will not be repeated in the second half.”

Mr Burns is forecasting revenue growth of five per cent to £8.4m for the full year and a six per cent increase in pre-tax profits to £2.39m and returned to his “buy” recommendation on the stock.

“As a result of last month’s share price decline, Getech shares can be picked up for 10.8 times current year earnings bringing them back into buying territory against our unchanged 92p price target. Although the more risk averse may prefer to hold off given a greater than usual forecast risk we return to ‘buy’ this morning,” he said.

Getech announced an 80 per cent leap in annual pre-tax profits last year.

The group, which maps out areas around the world where oil may be found, believes that strong demand for its proprietary global information system, Globe, will continue to drive sales and profits.

Mr Burns said: “Getech expects to sign new sponsors for the Globe programme and feedback from existing customers gives good confidence that most will renew for the next three year programme, commencing July 2014, although clearly the timing of this is close to Getech’s July year-end.

“In addition, the scope of Globe is to be expanded, enhancing new product flow and appealing to smaller customers.”

Getech has said it is on the hunt for acquisitions. Dr Paton said the group is looking at firms that have similar skills, firms that have different technical data or it could spend money on new datasets.