Raymond James initiates coverage of Petrofac, Wood Group

17th Oct 2016 09:32

(ShareCast News) - Raymond James initiated coverage of Wood Group at 'outperform' with a 900p price target.It said Wood was in the frontline to take advantage of the oil market recovery it expects.Raymond James said management has weathered the downturn well, preserving the strong balance sheet."Wood's direct exposure to US shale activity, which is one of the earliest beneficiaries in the upturn, is a differentiator within the large European oil service players. The healthy free cash flow generation underpins the steady dividend growth and the bolt-on M&A strategy."It said the recently-announced reorganisation may lead to more efficiency, adding that the valuation looks compelling, particularly relative to Amec.Raymond James started Petrofac at 'strong buy' with a 1,200p price target.It pointed to the many opportunities that exist in the group's core strengths in onshore engineering and construction activities in the Middle East and North Africa, where it is bidding heavily and stands out among the best-in-class contractors."As capex is set to drop, we expect free cash flow to grow materially, pointing to rapid deleveraging and continued generous distribution to shareholders. With a 5.9% dividend yield and sound prospects, valuation looks very attractive to us."At 0940 BST, Wood Group shares were down 0.6% to 800p and Petrofac was flat at 936.50p.