Amec Foster Wheeler has lost more than a fifth of its value after the oil services group slashed its dividend and forecast a fall in margins. The news has wiped more than £600m off Amec’s market value.
With oil companies cutting capital expenditure after the crude price slump, services companies have been struggling in recent months. Amec said it expected second half margins to fall compared to the first six months, as it reported a 3.4% like for like drop in nine month revenues to £3.87bn.
The company said it had raised its cost cutting target by $55m to $180m by 2017 and would reduce its final dividend by a half compared to last year, to 14.2p a share.
The news has sent its shares down 162p to 585p, a decline of nearly 22%. Chief executive Samir Brikho hailed the company’s “high quality and diversified business” and its resilient financial performance but added:
However, 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..we have seen customers reducing capital expenditure and putting more pricing pressure on the supply chain. We see no sign of these trends changing.
In the light of the ongoing market conditions, we are taking the prudent step of cutting our ordinary dividend payments by fifty per cent, starting with the final dividend for 2015.
Investec analyst Neill Morton said:
Covering the oil and gas sector feels like being punched in the face every morning. Today’s windmill comes from Amec, with a hefty profit warning. Given its diversity, both geographically and by industry, it is rightly regarded as an industry barometer. But its asset-light, cash generative business model means the surprise is all the greater when it warns. 2016 looks tough, 2017 likely also, with any rise in the oil price no guarantee of a pick-up in customer activity.
Others in the sector have also seen their shares slide. Hunting is down 11.1p at 361.8p as it too reported difficult trading conditions, saying profit from continuing operations could fall by 90%. Petrofac has fallen 57p to 816.5p and Wood Group is off 25p at 602p.
Oil companies are falling too, with Tullow Oil down 15p at 218p and Premier Oil 3.85p lower at 84.15p.
