Broker tips: Wood Group, IWG
By Iain Gilbert
Date: Monday 08 Apr 2024
(Sharecast News) - Wood Group is "on the right track" with its turnaround, according to Berenberg but the broker still cut its target price for shares of the energy and materials engineering and consulting business following the group's recent results.
The broker has reduced its target for the shares from 180p to 150p and kept a 'hold' rating on the stock after the company's 2023 results last month. The figures were broadly in line with forecasts, but free cash flow (FCF) is now expected to stay negative for 2024, while net debt was slightly higher than guidance.
"While we recognise that Wood is implementing a turnaround, we would like to see several quarters of improved delivery and better cash generation before we become more confident in the outlook," Berenberg said. "With moderate expected revenue growth and positive cash generation delayed by another year, we continue to see opportunities elsewhere across our coverage."
While the German bank acknowledged that the valuation isn't expensive, it predicts only a "limited likelihood of a re-rating" until the wider market becomes confident of Wood Group's FCF generation.
RBC Capital Markets has said it sees a buying opportunity at IWG after a recent underperformance in the shares, keeping the workspace solutions group at 'outperform'.
The broker said it still sees upside from the current level of 186.8p (as of last Friday's close) and kept a 215p target price for the stock, saying that the risk-reward balance was "in favour, especially given the recent pullback from 200p".
"We upgraded the stock at the start of the year and the rationale still holds: IWG has started hitting expectations, and we believe consensus forecasts look achievable, even in the current macro environment," RBC said in a research note.
"There is genuine evidence that the business is moving to a capital-light model - this should have implications for growth over the next few years as the 1k+ locations signed over the last two years ramp up and perhaps more importantly for cashflow, as it coincides with high depreciation from the 2016-19 expansion phase. Unlike peers, services are also now a meaningful chunk of the business."
The broker said there was a "clear opportunity" for IWG to establish itself as the largest independent global marketplace for flexible working, and it could "monetise part of all of the business over time".
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