Canaccord reiterates 'hold', lifts target price on Wood Group

21st Dec 2016 09:04

(ShareCast News) - Canaccord Genuity on Wednesday reiterated a 'hold' rating on John Wood Group but raised its target price to 875p from 850p.Wood Group's shares are more than 15% ahead of the sector, proving "remarkably resilient", Canaccord analyst Alex Brooks said.The broker raised its estimate for earnings before interest and tax in 2016 to $370.5m from a previous forecast of $358.6, representing a 21% year-on-year decline. Canaccord cited cost cutting, a solid operating performance and some good project close-outs in its new estimate."What is equally clear is that in order to achieve this the group has had to work hard, offsetting heavy falls in activity in multiple end markets; the swan's progress may look smooth, but unseen are the feet, busy paddling beneath the water," Brooks said.Brooks noted that the company's pre-close statement on 14 December revealed that the US business is yet to see any pick-up in activity despite an improvement in the rig count.Outside of North America, "some businesses are doing well", including Automation and some of the international units but "broadly speaking demand remains soft"."Subsea in particular is facing severe headwinds with almost no major new projects coming to market," Brooks said.Canaccord has reduced its revenue forecast for 2016 to $4.86bn from a previous estimate of $4.88bn. The broker also downgraded revenue estimates for 2017 to $4.72bn from $4.86bn and for 2018 to $5.40bn from $5.51bn.As a result, the earnings per share guidance has been lifted by 1% in 2016 but downgraded 5% in 2017 and 7% in 2018."We continue to be towards the top end of consensus on EPS, which is in large part attributable to our assumption of continued bolt-on acquisitions by Wood Group, deploying its considerable balance sheet capacity and cash generation," Brooks said.The analyst added: "We upgraded the stock to a 'hold' earlier this month, reflecting the market's voracious appetite for energy services companies and investors' apparent confidence that these companies can grow into what are generally elevated multiples."We don't think much changes with the trading statement: this remains a high quality company, likely to see a major recovery in earnings over the next two-three years, with a multiple to match."Shares edged up 0.18% to 858.50p at 0925 GMT.