Barclays reinstates Wood at 'underweight' given hurdles to integration

Barclays Research has reinstated its 'underweight' recommendation for shares of Wood, pointing to the possible hurdles management will face in trying to reap the potential cost synergies from the combination of Wood Group and Amec Foster Wheeler.

The opportunity to optimise was "real," the broker conceded, but cultural differences between the two legacy outfits might be an obstacle.

Complicating matters, the new company faces a need to deleverage and an investigation from the Serious Fraud Office, Barclays said.

Managament's target for lowering its net debt-to-EBITDA ratio below 1.5, from 2.4, would be "challenging" if cost savings were as planned, the broker added.

According to the analysts, another consideration was that the growth profile of the company was now likely to be lower than that of its oil field services peers. Heightened stability might justify a higher valuation, but it would also mean the upside in the shares would be capped in an upturn.

Indeed, regardless of whether one compared it to European OFS, European business services or Global Engineering and Construction companies, the shares were already standing near the upper end of valuation ranges for peers - ecen assuming costs savings out to 2019.

"To make it more attractive to us it would need to more than double savings, and deliver them sooner".

The discounted cash flow-based target price was kept at 730.0p.