Analysts at Berenberg lowered their target price on engineering and consulting firm Wood from 300.0p to 275.0p on Thursday after its environment and infrastructure business was acquired by WSP.
Berenberg stated with the deal now completed, Wood’s sale of its Built Environment division addressed balance sheet issues amid “positive momentum” in its order book and exposure to end markets widely expected to experience secular growth and strong cyclical growth.
Once the sale closes, Berenberg said Wood was likely to end the year with close to zero net debt, highlighting the “striking gap” between its current market cap of roughly £1.0bn and consensus underlying earnings estimates for 2023 of $500.0m.
“Whilst we understand the market’s loss of patience in Wood, it is difficult to reconcile these two figures unless we assume there are material further horrors to be discovered in Wood’s legacy project portfolio,” said the German bank, which reiterated its ‘buy ‘rating on the stock.
“We are updating our forecasts to reflect the $1.8bn sale of BE, and taking the opportunity for a somewhat more cautious view on earnings; nonetheless, we continue to see this as an interesting and deeply mispriced asset for investors with the patience for the anticipated recovery.”
Reporting by Iain Gilbert at Sharecast.com
