Investors looking for other undervalued opportunities in the oil services sector after Amec Foster Wheeler (AMFW) agreed to a $2.7bn merger with Wood Group (WG.) (13 Mar) could consider maintenance vessel provider Gulf Marine Services (GMS).

A discounted valuation reflects a stretched balance sheet. A January trading update suggests market conditions are improving and we would expect a similarly positive message alongside full year results on 28 March to be well received. The shares at 69.81p trade at 5.5 times forecast earnings for 2018.

Wood’s offer comes only a few days after we flagged Amec’s shares in last week’s issue of Shares as being too cheap. In dollar terms the deal values Amec Foster Wheeler at less than the $3.1bn it paid for Foster Wheeler in January 2014.

Ownership split

If the Amec deal is successful then Wood would own two thirds of the combined entity. The transaction is expected to achieve at least £110m worth of annual cost savings.

News of the transaction overshadowed a full year trading update from Amec. It reported an 8% decline in revenue on a like-for-like basis to £5.4bn, reflecting continuing struggles in oil and gas.

A £500m rights issue planned to accompany full year results on 21 March has been suspended in the wake of Wood’s offer.

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