Jefferies initiates Wood Group at 'buy'

Shares in oil and gas services company Wood Group rose on Wednesday as Jefferies initiated its rating on the stock at ‘buy’.

“The company, in our view, has executed a far more coherent growth/mergers and acquisitions strategy compared to UK Service peers, Amec Foster Wheeler and Petrofac and has the balance sheet to pursue further deals,” Jefferies said.

The broker said the company is geared to US shale activity returning and holds a market leading engineering offering through its WG Mustang & WG Kenny businesses.

However Jefferies noted that Wood Group is dealing with further margin pressures amid a slump in oil prices and expected low activity by operators, particularly in the US shale business where the firm’s upstream facilities construction offering is strongly correlated to well count

Jefferies added that the engineering business is working in a subdued market for new material offshore development projects.

“However, as we have seen from companies such as SUBC, your own costs can be aggressively managed in this environment and awards are still out there.”

Jefferies issued a target price of 750p. Shares were up 0.56% to 631.50p at 1040 BST.