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(ShareCast News) - In the Sunday Times' Inside the City column, John Collingridge takes a look at Wood Group and its £2.2bn all-share takeover of Amec Foster Wheeler, which it completed last week.
Collingridge described the deal as an "opportunistic" one, which was struck in March at a time when the engineer was on a down swing and preparing for a £500m rights issue in a bid to shore up its balance sheet.
He did note that such a takeover had been on the horizon for a long time, although until a few years ago it would have been a safe bet that Wood Group would have been the one being gobbled up.
The transaction, says Collingridge, was borne out of Wood's desire to reduce its reliance on the oil and gas sector - one which has been a struggle recently, as lower prices eat away at margins.
In buying Amec, it is not able to branch out into other engineering fields - including nuclear - much faster than it otherwise could have if it had done so organically.
And it wasn't such an out-there risk in context given General Electric's merger of its oil and gas assets with Baker Hughes and the acquisition of Cameron International by Schlumberger.
But it wasn't exactly plain sailing, with the competition watchdog forcing Wood to sell Amec's North Sea operations, as it would otherwise have held a market share of 60% in the region.
While Wood had said it was expecting some disposals to result from the deal, Collingridge quips that chief executive Robin Watson was almost certainly not anticipating the shedding of £700m in revenues and more than 4,000 staff.
The result - selling Amec's North Sea assets to Australia-based Worleyparsons - has put the competitor from down under right into Wood's backyard.
It's also forced Watson to scale back his cost savings target on the deal to $170m (£128m), which analysts at Jefferies have pointed out as a difficult goal given the lost staff and the weaker market.
Those analysts are also concerned for the future of Wood's dividend, and noted the £10m in debt that came with the purchase of Amec, although Collingridge does point to asset sales to help the latter.
"Other clouds are gathering too, such as a Serious Fraud Office probe into Amec, and an internal investigation at Wood - both involving their dealings with Unaoil, a Monaco energy consultancy," Collingridge says.
He added that there was "little wonder" Wood's shares have struggled since the announcement of the deal - although there had been a slight rebound in recent weeks.
"At 717p, that puts Wood in touching distance of a coveted FTSE 100 spot. That might be as good as it gets. Avoid."
Over in the Mail on Sunday, Joanne Hart focussed on Strix Group, which makes seldom-seen safety controls for Britain's most loved appliance - the electric kettle.
Hart noted that, while Britons consume 165 million cups of the good stuff each day, it was only 12th on the global tea consumption per capita, behind such countries as Uruguay, Kenya and Turkey.
She also pointed out that other countries, not traditionally known for their tea consumption, were also catching on, with tea not accounting for half of all drinks served at Starbucks shops in the US.
All of these trends are a good thing for Strix, Hart says, which makes the controls which turns a kettle off when it reaches boiling temperature, or prevents boiling if there isn't enough water, stopping the benign benchtop jug from turning into a steam-powered rocket.
The AIM-traded company only floated in August, and had a current share price of 136.5p along with a generous dividend policy which is expected to pay out 7p in 2018 - implying a yield of more than 5%.
It's no minnow, either, with its controls used around a billion times each day in kettles made by such household names at Philips, Siemens and Tefal, boasting a market share in kettle controls of 39% - four times that of itc closest rival, Otter Controls.
Strix has a steady market in the UK, where households already have an average of 1.2 kettles each, as Britons apparently tend to upgrade their boiling implements every three years, bringing in "reliable, recurring" revenue.
But there remains some strong potential growth markets, too, with only 12% of homes in the US owning a kettle - although numbers were rising 10% annually - and millions of homes in China either being kettle-free or owning products with poor safety features.
The market there was expected to double in the next few years, with the tightening of safety regulations and the increasing wealth of Chinese consumers.
Strix remained focussed on those growth markets, creating new low-cost controls to appeal to those parts of the world with more lax safety regulations but a growing consumer appetite for safety, including parts of Latin America, Asia and Russia.
And its catalogue does not stop at kettles, either, with Strix also manufacturing Aqua Optima water filters, and the controls for the popular baby milk heater from Tommee Tippee.
It also developed so-called 'turbo toaster' technology, capable of toasting bread in less than a minute, and currently available on a number of machines sold in the UK, Germany and Australia,
The company is based on the Isle of Man, where much of its research and development work is done and where it can enjoy a zero-rate of corporation tax, although most of its manufacturing is done in China.
Brokers were expecting Strix's pre-tax profits to improve 16% to £26.6m in the current year, Hart said, rising again to £29.1m in 2018.
"The group has done well in its first few months as a listed business but the best is yet to come," Hart commented.
"Investors with a long-term view should do well out of this stock - and the dividend is an extra perk."
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