Broker tips: Wood Group, Lamprell, Vesuvius
Barclays downgraded Wood Group to ‘equalweight’ from ‘overweight’ on Friday and cut the price target to 330p from 370p following recent outperformance.
The bank said the transition-related potential of Wood has gained investor traction over recent months as its broad-based engineering-based focus allows it to offer a variety of skills to the emerging new energy environment. However, that does not make it immune from the oil price or from sub-optimal execution on projects, which cost a further $20mn in the second half 2020, it added.
Barclays said that including the impact from Covid-19, the project award cadence has reduced and year-end backlog now stands 20% lower.
"Business has slowed, and while there is a scenario which could see a rebound as the year progresses, at this juncture it looks as if revenues in 2021F will fall meaningfully again and put further pressure on margins," the bank said.
"The good news is that underlying performance has improved, costs continue to come out, the issues are largely in the US and the provision absorption of cash should drop."
With the shares having doubled since the March 2020 lows, outperforming the sector by more than 50%, Barclays said it sees the headwinds as a hindrance to continued outperformance.
Analysts at Canaccord Genuity raised their target price on oilfield services provider Lamprell from 55.0p to 90.0p on Friday following the group's year-end trading statement.
Canaccord highlighted that cash flow, in particular, had performed well and that the firm had closed 2020 with a net cash position of $112.0m - more than $40.0m up on the end of June.
The Canadian broker said Lamprell's backlog of $520.0m was solid, despite no Saudi LTA contract yet appearing, with roughly $455.0m expected to be executed in 2021, underpinning its forecasts for 2021.
Most significantly for Canaccord, Lamprell has formally stated a "strategic reorganisation" as the group "continues to explore how best to finance" certain business units going forward, which it reads as indicating the possibility of splitting the higher-growth renewables and digital units from profitable but low-growth oil and gas operations.
"We are moving our price target up to reflect the possibility of this split, and the valuation uplift to those higher-growth units that we think is likely as a result," said Canaccord, which kept its 'buy' rating on the stock.
RBC Capital Markets downgraded molten metal flow engineer Vesuvius to ‘sector perform’ from ‘outperform’ on Friday following the recent rally in the share price, which leaves the valuation more reflective of the opportunity.
The bank said it continues to see Vesuvius as an attractive self-help story with the potential to lift operating margins to the 12.5% medium-term target management have set out.
"However, with the shares up 29% in the last three months versus the UK engineering sector up 10%, the shares are now on a price-to-earnings of 16x21E and 13x22E versus the group's 10 year average of 11.6x.
"As such we see the relative value opportunity as having largely been captured and we downgrade."
RBC lifted the price target to 550p from 480p, based on a target EV/sales of 1.1x, up from 1x previously.
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