Market Report: Hopes of disposals push John Wood stock higher
Friday 04 February 2011
The energy services provider John Wood was among the major gainers yesterday as speculation spread that the potential disposal of its well support division could prompt the company into further merger and acquisition (M&A) activity or a return of cash to shareholders.
As Wood informed the market that it was "evaluating the possible sale" of the unit, analysts were split over how much it could fetch, with Halliburton and GE among those talked about as possible buyers.
Pointing out that the division contributed over a third of the group's total revenue in 2009, Evolution Securities' Keith Morris said that it could be sold for over $1bn, while Royal Bank of Scotland's Phil Lindsay suggested a "realistic range" was between $1.5bn (£925m) and $2bn.
If the sale did go ahead, Mr Lindsay noted it would probably move the group "into a net cash position" and that it was therefore "likely to consider further M&A to plug holes in its geographic coverage in [its engineering and production facilities division] and/or return cash to shareholders".
Meanwhile, Mr Morris said a sale would wipe out the debt from Wood's $955m deal to buy PSN, which had raised fears of a potential rights issue.
With Wood 12p stronger at 579.5p, the analyst also asked if this could be "a first move which ultimately could see [it] disposing of its engineering business to Amec?"
Overall, the FTSE 100 fell back 16.73 points to 5,983.34 following two strong sessions, with market voices noting that investors appeared to be holding back ahead of today's key US non-farm payroll data.
There were plenty of blue-chip group revealing updates yesterday, including Royal Dutch Shell, and the energy giant slipped back 67.5p to 2,200p as its net profit for the fourth-quarter failed to match expectations. As a result BP and BG were also suffering, down 10.05p to 477.95p and 28p to 1,434.5p respectively.
GlaxoSmithKline advanced 40.5p to 1,168p after confirming in its final results that it was resuming its share buyback programme. The drug maker had already signalled that its profits for the fourth quarter would be hammered by legal charges totalling £2.2bn.
At the start of the day Unilever was moving ahead following its latest figures, but it did not take long for the consumer goods manufacturer to start heading the other way, and it closed 20p weaker at 1,837p.
Also releasing numbers were BT, whose strong earnings saw it rise 6.4p to 184.9p, and Vodafone, 0.1p lower at 177p, as it increased its profit forecast.
The telecommunications group also waded into the ongoing political uncertainty in Egypt, accusing the country's authorities of sending pro-government SMS messages via the company's network. Vodafone also said its customers in the country were still not able to send texts, but that they could now use their phones to make calls and access the internet.
Meanwhile, Tui Travel – which has lost over 10 per cent of its share price in the last week – announced that the turmoil in Egypt, as well as Tunisia, could hit the company by as muchas £30m. The tour operator moved down 4p to 243p as it also revealed that its year-on-year underlying operating loss for the first-quarter hadnarrowed.
The news that its shareholders had chosen Edward Bramson – the founder of the activist investor Sherborne – as its new chairman led F&C Asset Management to shoot up the leaderboard, finishing 3.25p higher at 88.75p. Mr Bramson's attempt to replace Nick MacAndrew was supported by more than 70 per cent of those attending the extraordinary general meeting, proposed by Sherborne, which currently owns an 18 per cent stake in F&C.
Ashtead was the top mover on the FTSE 250, as Singer Capital Markets highlighted an update from United Rentals, the world's largest rental company. The broker's analyst Andy Murphy said that the US group's figures "support our above consensus forecasts for Ashtead", which climbed 8p to 185p.
"Rates and utilisation are rising strongly," added Mr Murphy, "and are setting new records which imply better profitability in the sector than during the last cycle."
At the other end, Hansen Transmission dropped 3p to 53.5p, as UBS downgraded its advice on the group to "sell" following last week's interim management statement.
Among the small-caps, Eaga enjoyed a surge of 13.25p to 94.4p after the support services company revealed that it had been approached by an unnamed group, with speculation suggesting it could be a private equity firm.
On the Alternative Investment Market there was a massive move for Plastics Capital. The manufacturer was lifted 12.5p to 83p following its announcement that it had won its first Chinese customer since opening a sales office in Shanghai.
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