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Broker views: Takeovers, mergers and mining

14 March 2017 16:21

News that troubled engineering contractor Amec Foster Wheeler (LON:AMFW) has agreed a £2.225bn recommended all-share offer from oilfield services group John Wood Group (LON:WG.) sparked a flurry of commentary in the City.

Amec has been downgraded by Citigroup and Numis to neutral and hold (both from buy), respectively.

Commenting on the deal, Citi said: "We see this as a largely defensive deal given what remains a challenging environment for oil and gas activity."

Meanwhile, Numis lifted its target price to the acquisition price of 564p per share, implying a modest 3% upside.

On the Wood Group side of the equation, Macquarie didn't appear to be that taken by the news and repeated its neutral rating; however, upped its target to 810p from 700p.

The broker said: "On financial metrics the deal adds up if investors look out to 2020.

"Unfortunately for us however, end market diversification (a theme we currently like) seems to be more an outcome of the deal rather than a primary driver."

Separately, Deutsche Bank reaffirmed its buy recommendation and commented:

"While the deal stacks up well from a value and fit perspective our key concern relates to the legacy Foster Wheeler business.

"These issues however are not so clear as to cause us to lower our stance plus they offer enhanced profitability/cost saving potential if resolved, reiterate Buy."

Turning to financial related stocks, Jefferies has moved to a hold position on investment company Standard Life (LON:SL.), following the news of a proposed merger with Aberdeen Asset Management (LON:ADN).

The broker said the 3 year integration period is likely to be dominated by uncertainty, with synergies unlikely over the short-term.

"We downgrade to Hold to reflect short to medium term downside risks from revenue attrition, execution and governance alongside the unresolved structural issues of GARS and emerging market outflows at the respective groups," equity analyst Anasuya Iyer explained.

Price target left unchanged at 398p per share.

In a note from Berenberg yesterday, analysts said the merger offers limited upside but substantial risk.

The bank concluded: "We believe that the benefits, if any, rely more on a major change in fortune for Aberdeen's funds than they do on any cost savings, and the level of disruption that could be caused to Standard Life's business is high."

Berenberg trimmed its price target for Standard Life to 400p per share (from 416p) and downgraded the stock to hold (from buy).

In the mining sector, Acacia (LON:ACA) has been upgraded to hold (from reduce) by brokerage firm Peel Hunt, who reckons the ban on exporting concentrates will be a short-term issue which distracts from improving forecasts.

The broker commented: "The recent sell-off in the shares brings ACA far closer to fair value and creates a buying opportunity for those bullish on the gold price.

"Given our conservative price deck ($1,150/oz), we move our recommendation to Hold (from Reduce)."

Peel increased its target to 434p per share (from 362p), which it says is after performing a full review of its mine plans.

At 4:21pm:

(LON:ACA) Acacia Mining Plc share price was +7.55p at 468.05p

(LON:ADN) Aberdeen Asset Management PLC share price was -5.4p at 272.6p

(LON:AMFW) Amec Foster Wheeler PLC share price was -32.25p at 513.75p

(LON:SL.) Standard Life PLC share price was -7.2p at 364.3p

(LON:WG.) John Wood Group PLC share price was -46.75p at 715.75p

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