Berenberg lowers target price on John Wood Group despite 'sound' progress

Analysts at Berenberg lowered their target price on shares of energy services company John Wood Group from 590p to 540p on Friday, but said the company's underlying progress over the first half of 2019 was "sound".

Berenberg, which reiterated its 'buy' rating on the firm's shares, noted that after a sharp rally at the start of June, helped by a "positive" pre-close trading update, Wood had now given up all its gains and was trading at a decade low.

Wood's first-half results were "mixed", with revenues being weaker than expected but adjusted earnings before interest, tax, depreciation and amortisation and earnings per share coming in "slightly ahead" of consensus on the back of improved margins.

However, the German broker said that while Wood's first-half results were "light", particularly on revenue, with the solid progress being made on margins and its full-year targets remaining "within reach", it felt confident of the group's future, assuming a stable macro environment.

In Berenberg's view, underlying cash generation in the first six months of the year was "solid" and the group's valuation had since become compelling, with the stock trading on 5.4 times' its estimated 2020 enterprise value/EBITDA, with a 7.9% covered dividend yield.

Looking forwards, Berenberg said the main changes to its estimates were below the line, with higher tax and interest charges.

"Given the nature of the business and a half-year reporting structure, there are limited positive catalysts to drive the shares in the near term, but we see the stock as being too cheap."