WG.

An increase in interim profits of 44% prompted Ben Snow at Arden Partners to upgrade oil services company Wood Group (WG.) to ‘buy’ from ‘neutral’.

Even though Wood made made $181.3 million before tax in the first half, at 425.5p its shares are 13% off their year’s high.

Snow writes sector valuations have become more realistic as a result of a recent oil price-related sell-off. In the case of the £2 billion cap, the analyst points to ‘strong markets and margins’ and the fact management expects full-year results to be ahead of expectations. Snow has therefore increased his EPS estimate for 2008 by 7% to 9.3c, adding this forecast is underpinned by the strong performance of the group’s core Engineering & Production Facilities (E&PF) division.

Snow also highlights an industry-wide problem with recruiting and retaining quality staff while emphasising the company’s strength in this area is ‘continuing to allow it to deliver’.

He concludes by pointing out the stock trades on 13.8 times’ 2009 earnings, but argues the company is cheaper than it looks, since he suspects his estimates ‘understate 42% earnings growth forecast for 2008 and the prospect for further upgrades to 2009 numbers in due course’.

by Tom Sieber