With the oil price recovering, things may not be so bleak for oilfield support services after all, but brokers advise picking your stocks carefully.
Lamprell (LON:LAM) is a popular choice after it reiterated full-year guidance in its interims on Thursday.
JP Morgan has an ‘overweight’ recommendation and a 156p price target, while both Nomura and Investec rate the shares as a ‘buy’, with the former projecting a 200p price over a 12-month horizon, and the latter a more modest 165p.
“An increased focus on still buoyant Middle East markets should help, while ongoing efficiency improvements are mitigating margin pressure. Its addressable market could increase yet further should Lamprell add engineering services to its proven fabrication capabilities,” Investec suggests.
Nomura, meanwhile, says key growth drivers including upgrading and replacing old jack-up rigs in the Middle East, offshore construction in the North Sea, and growth in regional oil and gas rig costs.
“We expect the benefits of cost savings delivered by productivity improvements to help mitigate the effects of declining oil price and industry pricing pressures,” the Japanese broker said.
Yesterday’s interims from Amec Foster Wheeler (LON:AMFW) were largely in line with JP Morgan Cazenove’s expectations, but Caz noted that the company is targeting lower margin work to preserve its business size.
Analysts Daniel Butcher and Tahul Bhat have both been hitting the abacus hard and have lowered their medium-term EBITA (underlying earnings) assumptions for Amec, which has prompted a cut in the target price to 902p from 991p.
With the shares trading at 782p, that still justifies an ‘overweight’ recommendation from Cazenove.
Hunting’s (LON:HTG) results, meanwhile, were “a touch soft of expectations”, according to Deutsche Bank, but broadly in line with guidance given at the time of the pre-close statement.
“With the macro environment still fluid Hunting remains unable to guide for the FY [full-year]; however, with the commodity environment having deteriorated further, risk to current-year consensus - and the range tentatively provided with the pre-close statement - remains more to the downside in the near-term,” Deutsche Bank opined, as it stuck with its ‘buy’ rating.
Lastly, there is no recovery in sight for engineering firm Weir Group (LON:WEIR), according to Cazenove, with the slump in oil and metal prices set to increase price pressure.
The firm’s dependence on mining activity has been overlooked recently, Cazenove suggests, but should not be overlooked, given the spate of cuts to capital spending plants from large mining companies such as US giant Freeport McMoRan, which slashed its capital expenditure budget yesterday.
Meanwhile, although Weir’s management has proactively managed the cost base of its oil & gas division, Caz expects the operational leverage from further revenue declines to be well above the sector average, especially if cuts are driven by price pressure.
The broker stuck with its ‘underweight’ recommendation while chopping the price target to 1,260p from 1,380p.