RE: BLUE19 Dec 2021 20:52
Remark from HL
With the SFO investigation concluded, it's all about rebuilding for Petrofac.
The end result was a £77m fine to be paid off in two chunks in January and February 2022. More importantly, the ordeal kept Petrofac from vying for new contracts in the UAE and Saudi Arabia, some of the most lucrative markets for oil & gas services. That's had a significant impact on the group's revenue and profits.
The group seems to be moving in the right direction under new CEO Sami Iskander, with a focus on winning new contracts and rebuilding the order book.
Cost control in its core engineering businesses means the group will probably manage a slight operating margin improvement. Recent wins in renewables and low carbon energy are also a positive, albeit a small part of the business at present. If Petrofac can deliver both new business and margin improvements, 2020 will prove to be the low point in a hair-raising rollercoaster for shareholders. The upward slope could be sharp.
Back at full year results the group was bidding on $54bn of projects due for award before the end of 2022. Having won $2.0bn so far this year the group now has $40bn of new business due for award by the end of 2022. That suggests a win rate upwards of 14% - which if repeated over the next year would actually see the order book grow substantially. There's a chance renewed covid concerns could upset matters, but having Saudi Arabia and the UAE back on the table should help.
The pressing need to win business could lead to overly aggressive bids for what contracts are available, boosting revenues at the expense of margins and profits. That's an age-old problem in the construction sector and one Petrofac needs to avoid.
The all-important number at Petrofac continues to be the order book. With the SFO ordeal now in the rear view, the company's future depends on the fortunes of the wider oil sector (over which it has no control - but which does show signs of improvement). With a price/earnings ratio some way above the long-term average, the market's expecting a recovery. It looks like the group's firmly on that path, but we think there could be some volatility ahead if covid-related headwinds continue to hold back progress.
Petrofac key facts
Price/Earnings ratio: 17.0
10 year average Price/Earnings ratio: 9.1
Prospective dividend yield (next 12 months): 1.2%
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
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Half Year Trading Update
Full year Engineering & Construction revenue is expected to come in around $1.9bn, down from £3.1bn last year, largely due to low order intake and the continuing impact of the pandemic on project schedules and costs. Unrecoverable covid costs will be somewhat offset by cost control and tax provision releases, but
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