Barclays downgrades Wood Group after recent outperformance

Barclays downgraded Wood Group to ‘equalweight’ from ‘overweight’ on Friday and cut the price target to 330p from 370p following recent outperformance.

The bank said the transition related potential of Wood has gained investor traction over recent months as its broad-based engineering-based focus allows it to offer a variety of skills to the emerging new energy environment. However, that does not make it immune from the oil price or from sub-optimal execution on projects, which cost a further $20mn in the second half 2020, it added.

Barclays said that including the impact from Covid-19, the project award cadence has reduced and year-end backlog now stands 20% lower.

"Business has slowed, and while there is a scenario which could see a rebound as the year progresses, at this juncture it looks as if revenues in 2021F will fall meaningfully again and put further pressure on margins," the bank said.

"The good news is that underlying performance has improved, costs continue to come out, the issues are largely in the US and the provision absorption of cash should drop."

With the shares having doubled since the March 2020 lows, outperforming the sector by more than 50%, Barclays said it sees the headwinds as a hindrance to continued outperformance.

At 1135 GMT, the shares were down 3.1% at 339.70p.