Jefferies downgrades Wood Group on risks to progressive dividend
Shares in Wood Group came under pressure on Wednesday following a downgrade on its stock by Jefferies on the risk to its “progressive dividend” due to the merger with Amec-Foster Wheeler.
Amec Foster Wheeler
546.50p
17:00 06/10/17
FTSE 250
20,164.54
17:00 03/05/24
FTSE 350
4,515.50
16:54 03/05/24
FTSE All-Share
4,469.09
17:14 03/05/24
Oil Equipment, Services & Distribution
4,928.34
16:30 11/04/24
Wood Group (John)
152.00p
16:40 03/05/24
Jefferies downgraded the FTSE 250 company to ‘underperform’ from ‘hold’ and slashed its price target to 650p from 800p as it sees the deal with Amec will just “transfer the pain” rather than alleviate the risk to its dividend.
The broker maintains that that the deal would be a positive for Ace shareholders, Wood Group’s track record in mergers and acquisitions and balance sheet management would be tested by the merger as it aims to turnaround the company.
For the deal, Jefferies expects Wood Group to reduce the net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio from 1.9 times in 2016 to within a range of 0.5 - 1.5 times, and both delever and pay a progressive dividend following from Wood Group’s 2016 dividend of 33.3 cents per share.
It also sees a similar dividend issue with Amec after the deal goes through with limited free cash flow.
Shares in Wood Group were down 1.65% to 716p at 0811 GMT.