Investment Column: Wood Group still has lots of fuel in its tank

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Wood Group

Our view: Buy

Share price: 449.9p (+20.5p)

There is nothing quite like a major contract award to add a finishing flourish to a positive results announcement. Wood Group, the oil and gas services company, would have looked pretty good even without yesterday's confirmation of a $152m (£95.4m) contract with GWF Energy to build and commission the conversion of a gas turbine plant in California to combined cycle.

The interim management statement said performance was in line with expectations, with revenues of $50bn, and it was well positioned to deliver good medium-term growth.

We think so too. Even in the aftermath of BP's Deepwater Horizon explosion and the unprecedented oil spill it unleashed, oil and gas is still a good bet. Global demand for energy is still on the up and green technologies do not yet pack the same punch as hydrocarbons.

So much for the macro-picture. At the micro level, Wood Group is also a good bet. Its engineering division has several recent contract wins to boast about, including designing Chevron's Jack & St Malo deepwater facility in the Gulf of Mexico, and is set to improve further into 2011. Well support and pressure control are also boosting their global reach. Although Wood's gas turbine services market remains relatively soft, the combination of recent cost-cutting measures and a £150m combined-cycle engineering, procurement and construction contract in California should help the division back to robust growth. As long ago as last December, we tipped the company as a buy with the shares at a measly 288p. Now, more than 150p later, there is still headroom with the shares trading on a forward multiple of 14.9 times next year's earnings, which is by no means demanding. Buy.

Travis Perkins

Our view: Hold

Share price: 854.5p (-9.5p)

The builder's merchant Travis Perkins operates in a pretty uncertain market. On the one hand, we have public spending cuts which, to paraphrase the chief executive Geoff Cooper when he reported its interim results in the summer, are likely to be pretty hard on government-funded new-build homes. At the time, Mr Cooper said strength in remainder of Perkins's customer base would help to offset the hit. That is a reasonable view but we would still be cautious, as recent news from the housing market has been less than cheerful. Moreover, the cuts, we think, will hit sentiment across the board.

All is not lost, however. Travis Perkins has an ace up its sleeve: its planned acquisition of BSS. The deal will give birth to the country's biggest plumbing and heating trade and retail distribution business, putting it ahead of Wolseley. That should strengthen Travis's position in the market and drive renewed interest in its shares. In fact, they are already pretty attractive. On Seymour Pierce's numbers, they trade on a multiple of less than 14 times full-year earnings, compared to 15 times for Wolseley.

All aboard, then? Well, not quite. Yesterday's interim management statement from Perkins contained no update on last month's announcement that its acquisition of BSS would be delayed because the Office of Fair Trading needed more time to examine the deal. A decision is expected later this month. Although the City does not seem worried, we would wait until buying the shares. Hold for now.



YouGov

Our view: Hold

Share price: 35.5p (-1p)

YouGov was always meant to do well out of a general election amid the clamour for polling data. But this year it lost its chief executive Nadhim Zahawi, who decided to have a go at real politics rather than polling, and won Stratford-upon-Avon for the Tories. Still, YouGov's new boss Stephan Shakespeare was upbeat about the company's performance yesterday as he unveiled its full-year results, even if the 12 months to the end of July were pretty iffy.

Turnover was almost flat at £44.2m, while a goodwill impairment charge and one-offs drove it to a pre-tax loss of £9.6m, from a profit of £700,000 the year before. Mr Shakespeare said things improved in the second half, but that was when he took over and the period also included the election. He did say market conditions had improved and this had been sustained.

YouGov has cash on its balance sheet and is on a cost-cutting drive that has already stripped out £2.5m. It is also making headway in the US after acquiring Harrison Group. At a price of 21.7 times estimated results for the year to the end of July 2011, the stock is expensive, though. Things may be getting better and YouGov claims to have fixed a number of its problems, but we are still cautious. Hold for now.

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