Investors Chronicle Review9 Mar 2018 07:45
Up'd from Sell to Hold
Petrofac impairs yet again
Investment house Numis recently made Petrofac (PFC) its �top pick� in the oilfield services sector. It�s a contrarian investment case on a sentiment-drained stock � no bad thing in itself � but one immediately tested by full-year results.
In Numis�s view, the blandness of December�s trading update was a good thing, after unexpected write-downs at the time of prior announcements in 2015 and 2016. Unfortunately, Petrofac merely moved the timing of $372m-worth (�272m) of exceptional items and asset re-measurements to results day. The body blows came in two bursts: a $176m post-tax impairment charge triggered by the decision to exit the deep-water market, and a $179m hit to the integrated energy services business.
Exiting the former � in the name of reducing capital intensity and enhancing returns � has not dented the tendering pipeline. That remains robust, although with $8.5bn of the backlog set to be booked by the end of next year � and revenue visibility no longer �excellent� � Petrofac will hope to boost the engineering and construction division�s 21 per cent tendering success rate in 2017. All told, not quite the �positive operational momentum� seen by Numis.
There were a couple of bright spots. Cuts to capital expenditure and better-than-expected working capital flows at least meant that year-end net debt of $0.6bn came in below market expectations, and Petrofac�s pre-close guidance. Numis, which has set a 700p target price, expects adjusted EPS of 95.9�, against a 104� forecast for 2017.
�The longer that no evidence of serious wrong-doing emerges [from the SFO probe]�the more we think the shares will re-rate,� concludes Numis. That�s a big � maybe impossible � call, without the full facts to hand, although the bid pipeline alone cancels out our broader pessimism. Hold.
Last IC View: Sell, 433p, 30 Aug 2017
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