Foster Wheeler Upgraded - Analyst Blog

International credit rating agency Standard & Poor's upgraded the rating on Foster Wheeler AG’s (FWLT) corporate debt to investment grade. The current “BBB-“ rating is a notch higher than the previous “BB+” non-investment grade rating awarded by the same agency.

Foster Wheeler has improved its operating performance dramatically with big order wins and prudent financial control. In the most recently concluded quarter, new orders in Global Power Group were $162 million, impressively above $83 million in the prior-year period. The company’s increased orders reflect strong global demand for its CFB boiler technology and an improving market condition, particularly in Eastern Europe and the Far East.

The company’s balance sheet position remains strong with cash and cash equivalents of $973.9 million, long-term debt of $149.9 million and shareowner’s equity of $928.8 million at the end of the most recent quarter.

The most tangible benefit of the rating enhancement is that it will reduce the cost of the company’s recently renegotiated credit facility in the United States.

The company’s Global Engineering & Construction Group operates worldwide and designs, engineers and constructs onshore and offshore upstream oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, gas-to-liquids facilities, oil refining, chemical and petrochemical, pharmaceutical and biotechnology facilities and related infrastructure, including power generation and distribution facilities, and gasification facilities.
 
The Global Engineering & Construction Group also provides engineering, project management and construction management services.
 
We believe that the world demand for energy will continue to grow over the long term and customers will continue to invest in new and upgraded capacities to meet that demand. In that regard, Foster Wheeler has been successful in booking contracts for front-end engineering work, which frequently precedes significant work for engineering, procurement and construction.
 
Foster Wheeler continues to be successful in booking contracts of varying types and sizes in key end markets. The company’s success in this regard is a reflection of its technical expertise, its long-term relationships with clients, and its selective approach in identifying new prospects where it believes it has significant differentiators.
 
In the long term, the company believes that world demand for electrical energy will continue to grow and solid-fuel-fired steam generators will continue to fill a significant portion of this incremental generating capacity. CFB steam generators have the flexibility to burn a variety of fuels other than coal and produce carbon-neutral electricity when fired by biomass. In addition, the company’s steam generators can be designed to incorporate supercritical technology, which can significantly improve efficiency and reduce emissions.
 
The company’s operations are concentrated in four particular industries (oil & gas, oil refining, chemical/petrochemical and power). It may be adversely impacted by negative economic and other developments in these industries.
 
Worldwide operations involve risks that may limit or disrupt operations, limit repatriation of cash, increase taxation or otherwise adversely affect its business, financial condition, results of operations and cash flows.

We currently have a Neutral recommendation on Foster Wheeler.