Broker tips: Wood Group, GCP

10th May 2024 15:41

(Sharecast News) - Analysts at Berenberg raised their target price on engineering and consulting business John Wood Group from 150.0p to 220.0p on Friday following the group's first-quarter trading statement that came hot on the heels of news that it had rejected a takeover bid at 205.0p per share.

John Wood said Q1 revenues were lighter but Berenberg also noted that encouragingly, underlying earnings had grown 4% despite the lower sales. Further growth was also expected as 2024 guidance of high-single-digit EBITDA growth was confirmed.

However, Berenberg said working capital movements were likely to see year-end net debt higher than previously thought.

The German bank added that a recent takeover approach from Sidara had been the near-term driver of performance, and it believes "a significant upside risk remains" due to the potential for further bids.

"However, if Sidara does not ultimately make an offer then we could see a large sell-off in the shares. We assume a 50:50 probability between a follow-up bid around the 240.0p level and no bid materialising, which underpins our price target of 200.0p," said Berenberg, which reiterated its 'hold' rating on the stock.

"We make minor changes to our estimates, nudging up our margin assumptions given the encouraging start to the year, but increase our net-debt estimates."

Infrastructure investment firm GCP was performing well on Friday after analysts at Jefferies upgraded their rating on the stock from 'hold' to 'buy' following the recent disposal of the Blackcraig Wind Farm.

The company announced on 26 April that it has sold its interest in loan notes secured against the onshore wind farm in Dumfries and Galloway for £31m - a 6.4% premium to a valuation at the end of March - proceeds of which will be used to prepay drawings under its revolving credit facility (RCF).

Jefferies pointed out that the deal reduces GCP's net debt to £45m, making a "key initial contribution" to the company's conditional target of releasing £150m (equal to 15% of its portfolio) from disposals or refinancings to repay the RCF and return £50m to shareholders before the end of the year.

"A recent disposal has helped bring forward the date at which the RCF will be repaid and the capital returns indicated for 2024 can begin," Jefferies said in a research note.

"Additional disposals will further accelerate this process, with scheduled loan repayments raising the prospect of ongoing capital returns beyond 2024."