Wood Group drops on Exane downgrade

Wood Group was under pressure after Exane BNP Paribas downgraded the stock to ‘neutral’ from ‘outperform’.

The bank said it has been a big fan of Wood Group for some time.

It noted the shares have materially outperformed the European oil services peer group over the last two years, on good cost control performance and the lower risk aspects of the company’s business model.

“However, we can’t ignore the looming risk to 2016 numbers, and the elevated valuation versus recent history perhaps offers less scope for disappointment than for the last two years.”

The bank said the combination of cyclical/structural pressures are likely to lead to material earnings downgrades – Exane is now around 10% below company-collected consensus – into the next update from the company in December, and it is concerned any recovery will be muted.

Exane noted worries over the threat to the subsea business from alternative business models as well as alterations to the North Sea market for opex work.

Still, it said attractions remain, pointing out that Wood is still a low-risk, free cash generative company with a very solid balance sheet and high quality businesses.

At 1210 GMT, Wood Group shares were down 2.3% at 549.42p.