Amec Foster Wheeler slashes dividend, sees long oil weakness

(ShareCast News) - Shares in Amec Foster Wheeler tumbled after the oil and gas engineering services company announced it was cutting its dividend by half and lifting its cost-savings target for the year amid tough market conditions.The company increased its cost savings target by $55m to $180m (£120m) by 2017.In addition, Amec said that in light of ongoing weakness in the oil and gas markets, it had taken "the prudent step" to reduce its future ordinary dividend payments. It now expected to recommend a final dividend for 2014 of around 14.2p, which was half the equivalent declared last year.The company now also saw margins for the second half below those of the first.Chief executive Samir Brikho said: "We are not immune to the ongoing tough market conditions and we are managing the business on the assumption of an extended period of weakness."For more than a year - across many parts of our business - we have seen customers reducing capital expenditure and putting more pricing pressure on the supply chain. We see no sign of these trends changing."For the nine months to the end of September, revenue fell to £3.8bn from £3.9bn in the same period last year, while the order book stood at £6.5bn at the end of September compared with £6.6bn at the half year.Bank of America Merrill Lynch downgraded its stance on Amec to 'neutral' from 'buy' and slashed the price target to 750p from 1,000p following the update."The weak macro environment is posing problems, and the reduction in the dividend is a hindrance to the investment case. Whilst increased cost savings is a positive, they are unlikely to offset other negative factors influencing the cash flow generation capability," the bank said.Elsewhere, Atif Latif, director of trading at Guardian Stockbrokers, said: "We look for some downgrades to estimates after today that will add more downside risk to the share price in the coming sessions."He added that the oil services sector has been a tough place to look for absolute value, given the large volatility in demand for oil and oil services which has led to a radical reduction in net asset value, forward-looking earnings and continual dividend cuts.At 1300 GMT, Amec shares were down 22% at 578.50p.