Wood Group
Today’s news from Wood Group (LSE: WG) is very positive, with the oil services company being awarded a five year, multi-million dollar deal to deliver a range of services to Total regarding its four offshore assets and two onshore facilities in the UK continental shelf. The contract is effective immediately and should help the company to deliver on its relatively upbeat profit forecasts.
Of course, they are upbeat relative to the significant declines experienced within the oil industry, with Wood Group still expected to post a fall in earnings of 3% in each of the next two years. However, its current share price appears to more than price this in, with it offering a substantial margin of safety, as evidenced by a price to earnings (P/E) ratio of just 11.7. As a result, and while the short term could be somewhat lacklustre, the medium- to long-term outlook for Wood Group remains strong.
Amec Foster Wheeler
Also announcing positive news today is Amec Foster Wheeler (LSE: AMFW), with it being awarded a nine year contract worth up to £15m per year to provide project management services to EDF’s nuclear power stations in the UK. This could help to lift investor sentiment in the company, which has been somewhat lacking in the last year, with the company’s share price falling by 17% during the period.
Looking ahead, Amec Foster Wheeler has upbeat growth prospects and a considerable margin of safety. For example, its bottom line is forecast to rise by 3% this year, and by a further 8% next year. That is roughly in-line with the growth rate of the wider index and, despite this, Amec Foster Wheeler trades on a P/E ratio of just 11.1 versus 16 for the FTSE 100. As a result, an upward rerating seems to be very much on the cards.
Dragon Oil
The current year is expected to be a very challenging one for Dragon Oil (LSE: DGO), with the lower oil price expected to severely hurt the company’s bottom line. In fact, Dragon Oil’s earnings are expected to fall back to below their 2010 level, which would be hugely disappointing for investors in the company.
However, Dragon Oil is expected to bounce back strongly next year, with earnings growth of 52% being forecast. This puts the company on a forward P/E ratio of just 9.7 and, while there is still considerable uncertainty regarding the price of oil and whether Dragon Oil’s forecasts will be met, there also appears to be a sufficient margin of safety to suggest that there are generous capital gains on offer. So, while it may not be a particularly steady investment, it could prove to be a highly profitable one.
