Citi downgrades Amec Foster Wheeler following Wood Group takeover

Citi has downgraded Amec Foster Wheeler as it sees the oilfield services company having a more balanced risk/reward following the proposed takeover by rival Wood Group.

The bank downgraded Amec to ‘neutral/high risk’ from ‘buy’ and cut its price target to 580p per share from 600p, which is the implied offer price based on Wood Group’s share price of about 774p on Monday.

It also nudged up its 2017-18 estimates to reflect Amec’s 2016 results which were on in-line with expectations.

Amec’s 2017 outlook was similar to Citi’s forecast of another year of significant oil and gas and solar activity decline from the record levels in 2016, which is likely to be offset by stronger engineering and installation performance and a further material contribution from cost savings.

On Monday, Wood Group agreed to buy Amec for £2.2bn, which Citi sees as a “largely defensive deal” given the challenging environment for oil and gas, while it said that World Group would simplify Amec’s organisation, materially cut costs and position the business to benefit from a recovery in its key end-markets, but sees limited upside to its price target.

Wood Group has found cost synergies of at least £110m per year, aided by the overlap of operations in the North Sea which suggests that the chance of a rival offer is low.

Shares in Amec Foster Wheeler were down 2.11% to 534.50p at 0905 GMT.