Should you buy Amec Foster Wheeler plc, Imagination Technologies Group plc and Gulf Marine Services plc after today’s updates?

Roland Head explains the impact of the news from Amec Foster Wheeler plc (LON:AMFW), Imagination Technologies Group plc (LON:IMG) and Gulf Marine Services plc (LON:GMS).

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares of Amec Foster Wheeler (LSE: AMFW), Imagination Technologies Group (LSE: IMG) and Gulf Marine Services (LSE: GMS) plunged on Tuesday morning, after each firm published a trading update.

Do investors need to worry — or is this a buying opportunity?

Debt reduction is key

Shares of energy services group Amec Foster Wheeler fell by 7% this morning, after the group announced a contract win in the US coal market this morning.

No value was provided for the contract, which suggests to me it isn’t huge. But it’s a useful reminder that the group’s US division is winning new work in the face of the big downturn in the US oil sector.

Amec shares have lost 45% of their value over the last year. They now trade on just 8.5 times 2016 forecast earnings and offer a prospective yield of 4.6%. This should be a buy but the problem is that the group has net debt of around £1bn. To put this in context, it’s more than five times 2016 forecast profits of £195m.

Amec has previously said it expects to reduce net debt by 50% before June 2017 by selling unwanted business units. But there’s been no news yet on major disposals. In my view, Amec’s shares are likely to remain cheap until progress is made with debt.

Still a lot to prove

Imagination Technologies was 5% lower this morning after the group said that revenue from continuing operations fell by 23% to £120.8m last year. The group’s adjusted loss deepened by 46% to 9.2p per share.

On a more positive note, cash generated by operations turned positive and rose to £16.7m, while net debt fell slightly to £33m.

Imagination’s new chief executive, Andrew Heath, confirmed today that the company will now focus on its intellectual property business. Efforts continue to sell the Pure digital radio business, which Mr Heath says has had “considerable interest”.

Sales during the current year are expected to be relatively flat and forecast earnings of 6p per share put the stock on a 2016/17 forecast P/E of 30. Imagination shares have already risen by 30% in 2016. In my view, they now look fully priced.

This could be a big problem

Jack-up platform operator Gulf Marine Services has been attracting interest from private investors recently.

But the group’s shares fell by 15% this morning after the company admitted that pressure on pricing remained high. More worryingly, Gulf Marine said that two customers had cancelled charters early.

The value of Gulf’s secured backlog of charters has now fallen from $413.1m in May to just $275.8m and the company now says that 2016 earnings are likely to be 14.5 cents to 15.5 cents per share, below analysts’ forecasts of 16 cents per share. Net debt is expected to peak at $435m this year, before reducing gradually, but if fleet utilisation and charter rates fall, the cash needed to start repaying debt may not be available.

Given that Gulf Marine’s net debt is around eight time 2016 forecast earnings, I believe today’s profit warning is a serious risk and I suspect there could be more bad news later this year.

Shares in Gulf Marine Services are cheap for a reason. As things stand, I wouldn’t invest.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of Imagination Technologies. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »

Electric cars charging at a charging station
Investing Articles

Big news for Tesla stock investors!

Tesla has just quietly dropped a key target it set for itself just a few years ago. What does this…

Read more »