Interesting read29 Jun 2021 23:20
Once regulators finally clear the air, like they have just done for Wood, it could be opportune to offer a decent premium to market value before oil prices prompt recovery in demand for services. Its market value is currently less than a third of Wood’s, hence less of a financial hurdle and easier to integrate.
Enough weary shareholders might capitulate although the ex-CEO’s family does own nearly 19%. Toscafund, an enterprising hedge fund, owns 5%. This accords with a contrarian investment case, plus takeover potential.
I am quite a stale bull on Petrofac having had a broadly positive view in recent years and suggesting it as a ‘buy’ last January similarly at 109p.
As of the end of 2020, net tangible assets per share were 54p equivalent but arguably a service business merits some extent of goodwill/intangibles recognition, where overall net asset value (NAV) was 127p a share. It is not a stretch to say the stock is broadly around book value; another plus for takeover at what looks a cyclical trough for revenue/profit.
Realise also, two other hedge funds marginally raised their short positions a few days ago, implying they anticipate a swingeing SFO fine plus further revenue erosion.
The overall short position has however plunged from about 9% last April to 2.6% and Morrisons (MRW) had about 3.5% of its stock shorted before a bid approach. Wood is similarly on 3.5% with two funds increasing and two reducing their shorts.
Higher-risk ‘buys’ yet potentially higher rewards
A trough on charts will only become apparent in hindsight, but I think both stocks merit attention, according to your risk preference. Wood has at least had its situation cleared up by the SFO, yet there are also contrarian reasons to accumulate Petrofac. Buy.
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