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JP Morgan turns bullish on Wood Group as it praises Amec Foster Wheeler acquisition

“Wood Group's acquisition of AMFW has created an engineering blue-chip, with potential to enter the FTSE100 in the near term”
onshore oil rig
JP Morgan's price target of 810p is almost a quid above the current market value

JP Morgan reckons John Wood Group PLC’s (LON:WG.) acquisition of Amec Foster Wheeler will help the oilfield services (OFS) company to outdo its peers in the coming months.

Analysts at the investment bank have moved their recommendation up to ‘overweight’ from ‘neutral’ and increased their price target to 810p from 720p.

They expect the takeover of AMFW – which is set to close later this year – will create an “engineering blue chip” that has the potential to enter the FTSE 100 in the near future.

Wood is currently having to deal with a Serious Fraud Office investigation into Amec’s past, with allegations of possible bribery and corruption.

READ: CMA formally accepts remedies to Wood Group-AMFW tie-up

Even with that cloud hanging over it, JP Morgan believes the acquisition will prove to be beneficial for the company.

“The strategic rationale for the acquisition is clear: increased scale, broader capability and end-market diversification, enhanced by operational synergy capture,” wrote analyst James Thompson this morning.

“WG’s move away from offshore aligns with our Lost Decade thesis, with new markets offering superior growth (Renewables) and greater scale (Government & Infrastructure).”

He adds: “We believe shares can outperform OFS peers via: 1) delivery of base synergies targets, with further upside from incremental revenue & cost synergy capture; 2) balance sheet deleveraging, accelerated by ongoing sales processes; and 3) de-risking inherited liabilities, particularly the SFO investigation,” read this morning’s note.

Wood Group shares dropped 1.2%, or 9p, to 724.5p in mid-morning trade.

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