US Edition Petrofac
£14.43 +70p
Questor says BUY
This was largely priced in. Analysts had already expected that the group would beat this target, although the upgrade is slightly above analysts' expectations.
Petrofac designs and builds oil and gas infrastructure, trains oil field staff and maintains facilities. It also invests alongside producers in oil fields.
The company's stated aim is to more than double 2010 group earnings by 2015 and yesterday's update has shown that things are on track. Petrofac's order book has edged lower since its last update. It is expected to be $10.6bn (£6.8bn) at the year end, compared with $11.7bn at the end of December 2010. However, this followed a massive order in Turkmenistan at the end of last year worth $3.4bn.
The group has a strong pipeline of new opportunities at its engineering, construction, operations and maintenance unit and its integrated energy services division. The company has highly skilled technical staff and is well placed in locations such as the Middle East to bring these skills into partnership with national oil companies (NOCs). Also, the company won two onshore production-enhancement contracts in Mexico, where the group will help increase recovery from existing oil fields. In all, three contracts were tendered by the Mexican government, with Schlumberger winning the other contract. More tenders are expected next year.
Petrofac now expects to end the year with about $1.3bn in cash. About $400m of this is money that clients have advanced. Although the business is investing for growth, Tim Weller, chief financial officer, told Questor yesterday that the group expected to remain in a net cash position for the next few years despite this investment.
Shareholders shouldn't miss out too. The company's stated dividend policy is to pay out 35pc of net income. With revenues and profits rising over the next few years, this would imply the dividend will grow sharply. The shares are currently yielding a prospective 2.7pc in 2012, rising to 3.3pc in 2013.
Petrofac shares are up 208pc since the first recommendation on March 10 2009, at 468p, compared with a market up 47pc. The shares have been rated a buy as high as £14.10, which is below the current share price.
The above gain excludes the shares of EnQuest, which was demerged from the group and combined with some of Lundin's assets in April.
Shareholders should have received one share in EnQuest for each share in Petrofac they owned. These are worth 90.1p apiece.
The City is resoundingly upbeat on Petrofac's prospects, with the average price target of the 13 analysts monitored by Bloomberg being £17.40.
The shares remain a buy.