WOOD has been rated a top oil services sector pick by a City analyst who noted the Scots engineering giant has relatively limited exposure to the upstream exploration and production business.
Nick Green, senior oil and gas analyst at Bernstein, sees potential for a dramatic increase in the valuation of Aberdeen-based Wood, which he said was lean and well run.
“We continue to believe its idiosyncratic growth story is robust, and fully underpins the dividend,” wrote Mr Green in a research note.
This highlights the benefits Wood enjoys after diversifying amid the downturn in the oil services market in areas such as the North Sea that was triggered by the crude price plunge from 2014.
“Wood has the least ‘upstream O&G’ exposure of all our names, and accesses multiple industrial end markets,” wrote Mr Green. “None are spectacular; most are robust.”
Mr Green reckons Wood’s earnings could enjoy a significant boost as a result of the £2.2 billion acquisition of Amec Foster Wheeler (AFW) in 2017.
Master-minded by Wood’s chief executive Robin Watson, the deal gave the group exposure to a wider range of markets, including nuclear engineering.
Mr Green thinks Wood overpaid for AFW but could achieve big cost savings in the operations acquired.
He also thinks Wood’s share price may have been depressed as a result of short selling by people based on expectations of a cut in the company’s dividend, which he appears to believe are unjustified.
Bernstein’s target price for Wood shares is 830p. They closed up 25.3p at 514.2p yesterday.
Source: The Herald