Numis Securities has given a bullish assessment for the outcome of the planned £2.2bn takeover of engineering contractor Amec Foster Wheeler PLC (LON:AMFW) by oil services firm John Wood Group PLC (LON:WG.), leading it to upgrade ratings for both.
In a note to clients, Numis’s analysts said: “Assuming Wood Group's acquisition of Amec completes successfully then the deal will instantly double Wood Group's EBITDA, more than double its head-count to 64,000, and propel it into the FTSE100 (at current share prices).”
They added; “It is a bold, opportunistic step for the usually relatively cautious Wood Group, but does it make sense for its shareholders?
“Our analysis indicates the answer is a clear yes, and that the shares are currently undervalued.”
As a result, the analysts have upgraded Wood Group's price target to 929p and AMFW's to 670p and raised both companies ratings to ‘buy’, up from ‘add’ and ‘hold’ respectively.
In late morning trading Wood Group shares were 0.8%, or 6.5p higher at 783.5p, and AMFW’s rose 1.9%, or 10.5p to 568.0p.
Earlier this week, Wood Group raised the level of possible cost savings from the agreed merger by £40mln.
Read: Wood Group raises possible merger cost savings …
The FTSE 250-listed firm said that after “further ongoing analysis” it now sees annual pre-tax cost synergies of at least £150mln by the end of the third year after completion of the deal, up from a previous estimate of £110mln.
The group added that it was also "confident of realising additional cost synergies that cannot be quantified for reporting at this time".