Petrofac
877½p-315½p
Questor says SELL
THE profit warning at oil and gas services group Petrofac was all too predictable and with debts rising Questor sees little reason to go bargain hunting after the fall.
Investors in Petrofac have endured a tough year with two profit warnings sending the shares tumbling from more than £12 at the start of January to £8.88 today.
Only last month the company said it was confident of a strong second half, and meeting market expectations of net income of between $580m (£369m) to $600m. With just six weeks left in the year Petrofac said yesterday that results will be at the lower end of those targets, but more importantly net income next year will fall to $500m, well below the $588m target.
There have been plenty of warning signs of difficult trading with lower oil prices meaning reduced spending on new rigs.
The company said as recently as May that profits would be hit by delays in the Greater Stella Area project in the North Sea and lower-than-expected production in Romania’s Ticleni project.
Even Petrofac’s half-year results showed revenue was down 9.2pc to $2.53bn, and pre-tax profits slumped by 37pc to $188m in the first six months ended June.
With projects being delayed the only thing that was increasing was work in hand. The backlog of work, which mainly involves designing and building both onshore and offshore oil platforms, has increased to a record $21bn from $14.3bn last year.
Petrofac’s net debt – total debts less cash – had more than quadrupled to $1.3bn at the end of June, from $370m at the same stage last year. It has since fallen to about $900m following asset sales in August.
Questor warned investors to sell the shares as the management outlook was far too rosy (Sell, £11.23, August 27). The rising debt is now a bigger risk. Sell.