Wood Group is a major casualty of the slowdown in oil and gas upstream activity over the past five years. The company has racked up nearly $700m in net debt and is set for a year of negative free cash flow.

The green energy transition has ravaged Wood Group’s fossil fuel energy business. The decline in upstream spending has directly contributed to Wood Group’s demise. Investors, however, will be rightly critical of the company’s management of the situation.

Although the writing has been on the wall for more than a decade, Wood Group has only recently started to report substantive sustainable energy-related revenues.

Wood Group is doing really interesting things in hydrogen, carbon capture, LNG and waste-to-energy. Sustainable activities made up around 21% of revenue in the recent half-year period, and the company said its sales pipeline is around 40% sustainable solutions related. Some would argue that this is too little, too late. 

Notwithstanding Wood Group’s weighting to fossil fuels and sustainable solutions, the immediate concern is the company’s poor financial position, which was highlighted by a trading update in February. Wood Group shares halved the day it was released.

Be under no illusion that the trading statement released in mid-February deserved the market reaction it got. 

Wood Group is haemorrhaging cash and is being forced to sell off assets to plug an expected negative free cash flow of between $150m – $200m. 

Negative free cash flow is a concern because it raises questions about Wood Group’s ability to manage and improve its debt situation. This is a major red flag and is the main contributor to the 80% decline in the Wood Group share price over the past year.

The company is in trouble. Macro influences have been unkind, and Wood Group could have handled the headwinds better. Adjusted EBITDA more than halved from $885m in 2019 to $423m in 2023.

However, those looking at shares at 26p and attempting to gauge whether now is a good time to buy must consider the future and whether the company has a clear path to recovery.

Shares are trading below 30p for a reason. Wood is struggling to generate cash, and debts are mounting. Cash generation is key to a rebound in shares. The company is disposing of assets to raise cash this year, but selling off assets isn’t a long-term solution. 

Wood is undergoing a cost savings programme that is expected to reduce the cost base by around $145m between 2023 and 2026. Reducing costs will help improve cash generation, but the company desperately needs top-line growth.

Thankfully, the industry may just be turning in Wood’s favour.

The upstream fossil fuel industry is showing signs of increased investment, which will provide much-needed business for Wood Group.

After peaking at $814bn in 2014, annual investment in upstream oil and gas hit lows of around $400bn before steadily picking up to an estimated $580bn in 2024. Forecasters at the International Energy Forum see this increasing to around $780bn by 2030. A continued and steady increase in upstream investment would underpin Wood Group’s growth over the next five years. 

Donald Trump’s approach to oil and gas will be welcomed by Wood Group executives.

Meanwhile, Wood Group continues to win new business from the world’s largest energy companies, including BP, Shell, and Saudi Aramco, and will likely beneift if these major players increase their activity. As an example, Wood recently announced a $120m contract extension with Shell to develop brownfield offshore and onshore assets across the UK.

There could well be a rewarding medium-term trade in Wood Group as bargain hunters step in the hope disposals go well, and cash generation improves. The longer-term picture relies heavily on the company’s ability to become free cash flow positive in the coming year and whether forecasts of an uptick in upstream investment come to pass.

This is a high-risk play for those investors who believe the oil and gas sector will contribute to the global energy supply for years to come but also see renewable infrastructure spending expanding.

Wood Group has attracted private equity interest in recent years. The recent decline may have some licking their lips.

Standard Chartered helped the FTSE 100 carve out minor gains on Friday after the Asia-focused bank wrapped up FTSE 100 banking earnings with a very respectable set of results.

The FTSE 100 was trading just 0.1% higher at the time of writing and looked like it would have to rely on the US session for a catalyst.

“Financials were in demand after a strong set of results from Standard Chartered and miners also made some progress, but there was corresponding weakness in precious metals and energy stocks,” said AJ Bell investment director Russ Mould.

“Pharmaceutical firm GSK was also on the back foot amid speculation it could be targeted by activist investors after a long period of lagging behind its rivals.”

NatWest played catch-up with the rest of the banking sector and topped the FTSE 100 with a 4% gain. Despite the numbers not being particularly bad, there was a negative reaction to NatWest’s recent results, so some may have seen the relative weakness in shares as an opportunity. 

Standard Chartered was close behind NatWest after revealing a bumper $1.5bn share buyback that far outstripped analyst estimates. Underlying Q4 operating income came in at $4.8bn, higher than the $4.5bn, and shares jumped 4% on Friday.

“Standard’s latest quarter showed continued momentum, powered by a rock-solid top line and impairments that didn’t bite as hard as expected – a pattern we’ve seen across the UK’s banking giants lately,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.

“Of course, a $342 million software impairment muddied the picture, but it won’t impact capital levels – strip it out, and pre-tax profits crushed forecasts. Standard’s Asian flair, particularly its non-interest income strength, lit up the scoreboard with wealth management shining bright. That sector’s booming in Asia, and Standard’s ready to ride the wave.”

With the FTSE 100 offering little movement, investors can find a slightly more upbeat news flow from China and developments in AI.

Since the emergence of Deepseek, closer attention has been paid to what’s happening in China in terms of AI developments and news that Alibaba plans a big push into the space was a big talking point on Friday after Chinese tech shares surged.

The strength in Chinese equities had marginal read-across into China-centric FTSE 100 stocks Prudential and Rio Tinto that ticked gently higher.

SP Angel has rated Tekcapital shares a ‘buy’, highlighting a potential 60% upside from the current share price.

The broker has released an update note on Tekcapital following a substantial increase in the company’s portfolio value during 2024.

Tekcapital’s portfolio grew by 38% year-on-year to reach $64.2 million on an unaudited basis, driven by robust performance across its portfolio of technology companies.

The research note emphasises a significant transformation in Tekcapital’s portfolio structure, with four of its five portfolio companies now being publicly listed, representing approximately 68% of the portfolio value. Successful IPOs of both Microsalt and GenIP were key drivers of the increase in the portfolio value, with MicroSalt trading roughly double its listing price.

SP Angel notes that this concentrated portfolio approach has enabled Tekcapital to maintain low operating expenses and run its operations efficiently.

SP Angel identifies a potentially significant catalyst in the proposed Nasdaq listing of Guident Corp, Tekcapital’s remaining unlisted investment. Guident, in which Tekcapital holds a 70% stake, operates in the rapidly expanding autonomous vehicle market that is gathering momentum amid a flurry of IPOs and wider adoption of the technology.

The analysts point to recent successful listings in this sector, citing WeRide Inc.’s share price doubling post-IPO as an indicator of strong market appetite.

SP Angel notes Guident’s strong position in the safe teleoperation of autonomous vehicles, highlighting that remote monitoring and control systems have now become mandatory in ten US states. Currently valued at $18 million in Tekcapital’s portfolio, the analysts suggest that a successful IPO could unlock significant additional value for shareholders.

On valuation, SP Angel calculates that Tekcapital’s equity and convertible loan note investments are worth approximately £45 million, translating to an asset value per share of around 24 pence. This indicates that the shares are currently trading at a substantial discount of over 55% to net asset value.

The analysts suggest a target price of 16 pence, representing a 60% upside from current levels, based on bringing the discount more in line with the investment company sector average of 35%.

Despite having a fairly siggy week, the FTSE 100 is less than 5% away from touching the psychologically important level of 9,000. 

After bouncing around on either side of 8,000 for what seemed like years, the index of the UK’s top companies broke higher in the early weeks of 2025 and now has 9,000 within its sights. 

Whether the index can breach this level in the near term depends on several factors, none more important than where sterling goes in the coming weeks. 

The inverse relationship between the pound and the FTSE 100 has been the main driving force behind London’s leading index so far in 2025. A weaker pound’s favourable currency fluctuation supports companies’ earnings that are reported in dollars or euros. These companies make up a significant proportion of the FTSE 100 index and have the power to drive returns on an index level. And that they did.

The FTSE 100 hit a series of all-time highs through January and February 2025 as heavyweight overseas earners enjoyed the pounds sharp decline against the dollar.

In early 2025, poor UK economic data and concerns about the outlook were behind the pound’s weakness against the dollar, which was extenuated by relative strength in the US economy and forecasts of just one or two rate cuts by the Federal Reserve this year.

Indeed, until markets learned that UK CPI inflation rose to 3% in January, there was also a perceived divergence in the monetary policy paths of the Bank of England and the Federal Reserve. Interest rate futures markets had been pricing three or four cuts by the Bank of England compared to just one in the United States.

This set the pound on a path to the downside against the dollar and provided welcome support to the FTSE 100. This trend is now in jeopardy.

The BoE now looks unlikely to cut at its next meeting, and investors will have a close eye on any signs of inflation from wages or purchasing prices. Should inflation show signs of increasing, concerns about the BoE’s ability to reduce borrowing costs will intensify. This will be played out in the pound.

There are technical factors to consider around the FTSE 100 which underscores the importance of what the pound does next.

Such an unusually consistent rally for the FTSE 100 in early 2025 has left many companies trading at elevated levels and vulnerable to mediocre earnings. Barclays, Mondi, Marks & Spencer, and NatWest are obvious examples of investors banking profits after results didn’t knock it out of the park.

Failing a bumper surge in earnings on a constant currency basis, whether London’s leading index can test 9,000 before a meaningful correction relies heavily on the gyrations of the pound and how it can support earnings on an actual currency basis.