Deutsche Bank cuts Amec Foster Wheeler price target; margin risks drive caution

Deutsche Bank cut its target on Amec Foster Wheeler to 815p from 830p, noting that its trading update on Tuesday was weak, highlighting further pressure on the top line and margins.

“Despite a diversified structure and ability to lean on cost savings Amec Foster Wheeler is not immune to end-market weakness and current pricing pressure across many markets,” said DB, adding that it expects the margin outlook to deteriorate further with no turnaround likely in 2016.

Commentary that new contracts are being signed at softer pricing terms also suggests that underlying margin pressure will continue in 2016, said Deutsche.

DB cut its 2015 earnings per share estimate by 4.1% to 72.53p from 75.61p.

The brokerage said the key attraction is the yield, which at 4.8% compares favourably with Wood Group on 3.3%. However, it said the yield fairly reflects Amec’s balance sheet flexibility.

DB rates the stock at 'hold'.

At 1420 BST, Amec Foster Wheeler shares were down 0.8% at 908p.