barclays view ..still 230p from 16th december 202019 Jan 2021 11:47
(Alliance News) - Barclays downgraded Petrofac to Equal Weight from Overweight saying it was taking a more cautious stance on the oilfield services company due to an uncertain outlook in 2021.
The bank cut its price target to 230 pence from 330p. The stock closed down 5.6% at 153.55p on Friday, among the worst performers in the FTSE 250.
Petrofac on Wednesday said its trading is in line with expectations for 2020 despite a difficult environment caused by the Covid-19 pandemic.
The oilfield services company said it expects a group revenue of approximately USD4.0 billion, down from USD5.5 billion in 2019 and full-year profitability to be materially lower year-on-year. This is due to lower oil prices and an uncertain near-term outlook resulting in delays in awarding new projects across the industry, it said.
Looking ahead, Petrofac said a low order intake over recent years will result in a decline in revenue in 2021. To combat this, it has announced a set of measures designed to make a total estimated gross savings of USD250 million next year, which will seek to protect the business from lower revenues and ongoing pressures on margins, it said.
Barclays highlighted that a new chief executive on the way, is was unsurprising that the company presented a cautious outlook. The bank said that with a lack of orders, additional Covid-related costs that are as yet unrecoverable and loss-making contracts mean the next few years will be tough
for the company.
The long lead-times of its projects means the ongoing Serious Fraud Office investigation - which led to former executive David Lufkin convicted of paying bribes in Iraq and Saudi Arabia - will likely continue to hurt earnings in the coming years.
Chief Executive Ayman Asfari announced his retirement in October and will be appointed as a non-executive director at the start of 2021. He was replaced by former Royal Dutch Shell executive Sami Iskander, who joined as deputy CEO in November and will become group CEO from January 1 when Asfari leaves the role.
Barclays said 2021 was already expected to be tough for Petrofac on the revenue side with the protracted SFO investigation and a refinancing requirement, but a further barren patch for new contracts suggests it will be even slower than originally anticipated.
Moreover, according to Barclays, the newly disclosed loss-making contracts will dampen margins in the near term and any new work won will be likely to reduce margins even further.
"Our price target remains based on a 15% discount rate to reflect the risks in the business, and includes an USD800 million penalty for alleged improper sales practices, both of which we hope will prove conservative and yield material further upside potential. With 33% upside potential implied by our price target, and further upside risk beyond this, we see the value in Petrofac. However, with the cashflow recovery story now delayed, we see other names in our coverage as better placed at thi
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