Investment View: Amec is looking the best of the oils bunch

John Wood's family have been selling their stake in the company that bears his name, and that has sent a shiver through the share price. Some £130m worth of shares were sold by certain family members and trusts at the end of last month, although Sir Ian Wood, the founder of the company that split off from what was Scotland's largest fishing company in the 1980s, was not among them.

Some analysts sniffed a buying opportunity from the shares' wobble. Were they right? Today Wood Group issued a pre-close trading update that said its results would be in line with expectations. It said it expects to grow further in 2013, on the back of favourable market conditions.

In other words, oil companies around the world are still willing to spend capital on big projects, and companies such as Wood Group shouldn't be short of work, although it will be at least another year before its problematic contract in Oman starts making money.

So why are the family selling up? Perhaps some of them need cash. Perhaps they want to spread their money around a broader a group of companies. There can be any number of reasons. It's not necessarily a red flag for other investors although it should be taken into account.

I last looked at oil services in March when I said Wood Group was one of the tougher members of the sector to make a judgement on. I came down in favour of taking profits. The shares were then at 719p. They're a little higher now, but I'm not losing any sleep over it. It's not the worst call I've ever made.

On valuation grounds, at 14.4 times earnings with a prospective yield of about 1.4 per cent, John Wood doesn't look all that attractive. I don't especially see the buying opportunity some of the analysts do in the wake of the family sell-off, so I'd steer clear for now – particularly as there are better opportunities in the sector.

It is also worth noting that if you are considering investing in Wood Group or its peers, many are involved in work that some people might find controversial – oil sands being one example. So if you prefer your portfolio to have a green tinge, that's another reason for steering clear.

Looking just at the financials, Amec would remain my top tip. The most recent newsflow came at the beginning of the month when the business announced the award of a $528m (£330m) project management consultancy contract by the Kuwait National Petroleum Company for a new oil refinery at Al Zour. When completed, it will be the biggest in the Middle East, and will create 300 jobs at the company.

That came two weeks after a fairly upbeat trading statement, which suggested that business remains buoyant. Amec's shares haven't been flying recently. Wood's have outperformed them in the second half (although Amec has been gaining ground recently).

All the same, the group was one of The Independent's ten to follow at the start of the year. Today, Amec is comfortably ahead of its 2011 close of 907.5p although it is a little off the 1136p at which I said keep buying when I last looked at the sector.

Charles Stanley, the broker, recently highlighted the fact that Amec is planning to gear up (borrow more) because it feels its customers no longer need the reassurance of cash on the balance sheet before contracting with it.

That always makes me slightly nervous, however healthy a business is. But there may be a special dividend (good) or a share buyback (less good although it should support the share price).

Amec already offers a decent (3.2 per cent) prospective yield for the sector, and the valuation of 13.7 times full-year forecast earnings doesn't looked stretched yet. I would still rate the stock as a buy because you might as well take advantage if it starts throwing cash at shareholders.

Petrofac I viewed as worth buying if the shares, at 1656p, showed any signs of weakness, which they did in the summer, hitting a low of 1357p in June. They are now at 1706p and trade on 14.7 time earnings, with a forecast yield of 2.3 per cent.

Generally, prospects for oil services firms look quite good, and Petrofac has been a long-term winner. But here is the red light. As I revealed in May, deep within last year's annual report was the fact that the company last year paid $1.4m (£900,000) to hire a corporate jet from an offshore trust linked to the chief executive and founder.

The company's PR people got all hot under the collar, and said the directors of Petrofac used a chartered aircraft for "business travel to ensure they can work effectively across the business for journeys that would be impracticable using standard commercial flights".

It is true that Petrofac has businesses in far-flung places, but the arrangement is bad practice.

There a case for taking profits if you bought in the summer. I would rate the shares as a hold although you should use your vote at the annual general meeting to register your disapproval if the 2012 report reveals the plane arrangement in still flying.

Finally to Hunting Group. I said buy at 925p, but out of all the shares in the sector, it has been a big disappointment. It didn't help that the chief executive dumped 100,000 shares at 945p in May. On 14 times full-year earnings, yielding 2 per cent, it is just about worth sticking with the company. Hold.

Start your day with The Independent, sign up for daily news emails
News
peopleHere's what Stephen Fry would say
News
i100
Sport
Serena Williams holds the Australian Open title
sportAustralia Open 2015 final report
Sport
footballLive: All the latest from today's Premier League matches
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee