(Bloomberg) -- Former Elliott Investment Management executive Franck Tuil’s Sparta Capital Management is calling on consulting and engineering group John Wood Group Plc to pursue buybacks to boost its lagging stock price.
Wood Group is “substantially undervalued” against global peers and has the potential for “well over 100%” upside, London-based Sparta Capital wrote in a letter to John Wood’s board Thursday. The company’s current share price makes it vulnerable to opportunistic takeover bids, Tuil wrote.
“Wood generates reliable and predictable operating cash to invest in its future and reward its shareholders,” he wrote. “You should underpin the confidence and visibility you have in your future prospects with decisive action on shareholder returns.”
Shares of Wood Group were up 2% at 9:47 a.m. Thursday in London, giving the company a market value of £883 million ($1.1 billion). Sparta Capital, a multistrategy hedge fund launched last year by Tuil, is a top 10 shareholder in the Aberdeen-based company, people familiar with the matter said. The letter didn’t specify the exact size of its holding.
Wood Group has given shareholders a total return of -80% over the past five years, compared with a 7% total return for the benchmark FTSE 250 index over the period, according to data compiled by Bloomberg.
“We have engaged in a constructive dialogue with Sparta, and there is much in their letter that we agree with,” a spokesperson for Wood Group said in an emailed response to Bloomberg enquiries. “We look forward to continuing that discussion.”
Sparta’s move follows Wood Group’s agreement in June to sell its built-environment consulting business to WSP Global Inc. for $1.9 billion. Wood Group shares plunged last month after it gave new growth guidance and said its earnings are being hurt by currency movements.
“You should send the strongest possible signal to your shareholders that after years of under-delivery and underperformance, the board is committed to dramatically improving shareholder returns,” Tuil wrote in the letter. “You have provided the perfect backdrop to reset your capital allocation priorities and deploy a buyback.”
The spokesperson for Wood Group said the company had “consulted extensively” with its shareholders on the most appropriate use of proceeds from the built-environment consulting sale, as well as its leverage range.
Before starting Sparta Capital, Tuil spent two decades at Elliott’s London office where he was most recently a senior portfolio manager. He led the activist firm’s investments in Italian football club AC Milan, liquor producer Pernod Ricard SA, German agrochemical and pharmaceutical giant Bayer AG and European utility Uniper SE.
--With assistance from William Mathis.
(Updates with Wood Group response in sixth and ninth paragraphs.)
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