Wood Group slumps on Canaccord downgrade

(ShareCast News) - Wood Group shares slumped on Tuesday after Canaccord Genuity cut its stance on the stock to 'sell' from 'hold', saying the stock was overvalued following the recent outperformance.It said the company's full year results were broadly in line with existing consensus and although the group did not provide any formal guidance, the outlook for this year remains reasonably positive, with earnings likely to be down no more than 25% despite the major industry downturn.The brokerage said it was surprised to see the dividend lifted as much as 10%."On the current trajectory, payout will reach 53% (on adjusted diluted EPS) this year. After many years of above-sector dividend growth we think this source of performance is now exhausted," it said.Canaccord upped its price target on the stock to 575p from 550p to reflect the broader sector rally but said the current share price does not fairly reflect Wood Group's relative merits.It pointed out that while the majority of Wood Group's US activity is in operations and maintenance, and a growing chunk is outside upstream oil & gas entirely, the group still has a much greater exposure to US rig counts than its UK listed peers, with the exception of Hunting."In this context we find it surprising that the stock has been so resilient year-to-date, as US rig counts have been uniformly negative, reaching post-1940s lows in the past two weeks and looking likely to plumb fresh depths."In addition, Canaccord said its recent visits to Aberdeen confirm the very poor outlook for the UK North Sea. Although Wood Group's international upstream activities offer some short-term resilience, there is less certainty in the medium-term.At 0942 GMT, Wood Group shares were down 5% to 618.50p.