RBC Capital raises target price on John Wood

RBC Capital updated its model on the stock to reflect management's guidance for "modest deleveraging" in the second half of the year and for the dividend withdrawal in 2020 due to Covid-19.

As a result, the Canadian bank slightly lowered its expectations for the remainder of 2020 and 2021/22, in line with the company's current backlog.

When discussing risks to its target price, RBC said although Wood's business was less exposed to oil and gas, the analysts still expect a lower and longer oil price depression scenario to "significantly limit" the firm's contracting capacity, which could materially impact its business as well as their valuation.

However, RBC did highlight that Wood had a "flexible" business model that had allowed the business to shrink its overhead costs by roughly 30% over the past 18 months, resulting in sustainable cost savings of about $250m in response to lower demand from customers as a result of the decreased oil price.