Petrofac: perfectly placed to generate huge profits

By Author Charlie Gibson Jan 25, 2006

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Petrofac’s (PFC, 306p) upbeat trading statement last Friday was “just the tonic” needed to reassure investors who bought into the engineering services firm’s float last October that they had backed the right horse, says Robert Cole in The Times.

In the immediate aftermath of a first good day’s trading the shares slipped back substantially, but since then the firm has been on a roll, says the FT, winning, for example, a three-year contract worth almost $1bn in Oman and a contract to manage the building of onshore facilities for the first phase of the Kashagan development in Kazakhstan – “the largest discovery of oil in the past 30 years”.

Earnings should now be better than expected, says John Penman in The Sunday Times, particularly given that there appears to be some scope for the firm to recover some losses incurred from the Baku-Tbilisi-Ceyhan and South Caucasian Pipeline project in Georgia.

In the competitive world of contracting, firms find that their profits have a tendency to stall. Not so with Petrofac, says Cole. It’s starting 2006 with a “$3.2bn backlog in contract revenues and more contract wins expected”. On 28 times 2005 earnings estimates, falling to 26 times current year numbers, Petrofac isn’t obviously cheap, but it is growing, and the prospective multiple falls to under 20 times when cash flows, rather than earnings, are used.

What’s more, any firm with “exposure to the rampant global oil and gas sectors finds itself in a good position to generate big profits”. In Petrofac’s case, that’s true, “even if the oil price weakens”. Buy, says The Times.

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Published in Tips & advice | More articles by Charlie Gibson

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