Credit Suisse reinstates Wood Group at 'outperform', says it's 'best-in-class'

Credit Suisse reinstated coverage of Wood Group with an ‘outperform’ rating and 875p target price on Thursday, saying it’s “a best-in-class” engineering and maintenance franchise for which through-cycle earnings volatility should be eased by the acquisition of Amec Foster Wheeler.

CS said Wood Group offers exposure to the growing US unconventionals market, a recovering engineering market and the growing downstream/petrochem sector at an attractive valuation.

“It is a restructuring story, too, with $200m of cost savings on offer post the AMFW deal,” the bank said.

Credit Suisse said the acquisition of Amec accelerates Wood Group’s strategy to broaden end market exposure to alternative energy and industrial markets. It said Amec’s environment and infrastructure and mining franchises broaden the company’s exposure to industrial markets outside oil and gas.

In addition, greater downstream exposure should dilute exposure to oil company capex cycles and the deal should be accretive to earnings from 2017 onwards.

“The resulting lower earnings volatility should also support long-term cash flow generation and underpin a progressive dividend policy.”

At 1330 BST, the shares were up 0.3% to 700p.