Oilfield services firm Amec Foster Wheeler (LSE: AMFW) is the biggest faller in the FTSE 250 today after it announced an update on trading and on the progress of managements review of the business.
It said its on course to deliver resilient trading results for this year and next despite the continuing weakness in some of our key markets, butthecompanys shares have fallen by as much as 20%. Whats behind the fall? And should investors avoid the stock, or is this a buying opportunity for the long term?
Its complicated
News that management needs more time to complete its strategic review seems to have unnerved investors. The company had planned a capital markets day for 15 November, but has cancelled this and rescheduled it for as far off as 21 March.
Management is promising to take an additional 100m permanently out of our annual cost base,and has identified multiple long-term opportunities to offset the current headwinds in the oil and gas industry. However, with the company having identified a number of challenges as well as opportunities, and these opportunities requiring more work to develop detailed plans on how to deliver their full potential,the market is naturally concernedby the lack of visibility on the future shape of the business.
Similarly, while it expects to sell three assets for 100m before year-end and continues to target 500m of disposals by June 2017, management said: We have not yet concluded our thinking on the right mix of investment and funding options which in aggregate will lead to an appropriate balance sheet and create a strong ongoing business.
Based on a share price of 475p, Amec is trading on a forward P/E of 9.2 with a prospective dividend yield of 4.4%. However, with the task of sorting out the company clearly muchmore complex than chief executive Jon Lewis initially expected when he joined in April, I think this is a stock to watch for the time being.
Get set for recovery
Shares of Amecs sector peer Hunting (LSE: HTG) also headed south today, falling by more than 5% to 480p at one point this morning.
Hunting issued a trading update and announced an equity placing, equivalent to almost 10% of the companys current issued share capital. This has been completed, raising 70.9m at 485p a share.
Management said the revenue declines seen in previous quarters have stabilised in Q3, and that while the overall market is likely to remain subdued in the short term (particularly in offshore deepwater drilling), its seeing an increased level of enquiries and orders in some of its businesses. It believes these businesses have reached the bottom and are now preparing for a return to growth.
The company says the placing will further strengthen its balance sheet and provide additional funds for working capital and investment to capitalise on the localised areas of market recovery.
Hunting is well run with highly experienced management. It did the right things as the oil price declined and I reckon its doing the right things now in preparing for the oil and gas industry to return to growth. The company cant be valued on current (negative) earnings and isnt paying a dividend. But I believe the shares are worth buying for a long-term recovery.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
