LONDON (ShareCast) - While the decrease in Petrofac´s – the oil engineering and services group – cash on hand evident in yesterday´s trading update was startling, upon closer inspection it is not as alarming as it seems. That is because one needs to understand that the company´s business model involves the payment up front of huge sums from customers to allow the company to get on with the work, which then get used up. The advancement of several big projects, mainly the South Yoloten gasfield in Turkmenistan, accounted for $800m of that decrease. Similarly, the company´s Integrated Energy Services (IES) division put another $700m to work in different projects, including one in Mexico.

Locking up such large sums of cash carries risks, not least regarding political ones in some countries in which it operates. There have also been delays in winning contracts in areas such as North Africa and the Middle East because of those political uncertainties. Even so, the backlog of orders was up by $800m to a record $11.6bn. “Petrofac shares, up 24% since June, lost 19p to £16.61 yesterday; they sell on 13 times next year’s earnings, but I am not sure I would want to go short even at this level,” says The Times´s Tempus column.

Unlocking shareholder value through demergers is a difficult trick to pull off. Thus, for example, the break-up of the old Cable & Wireless empire in 2010 is generally seen as a disaster for investors. Cookson, which today will begin trading as two separate companies – Vesuvius and Alent - had been trading at a significant “conglomerate discount”, regarded as two different businesses that ended up with a rating that did a disservice to both. The belief is that each of the two managements should be free to focus on their own businesses, while the market will have a clearer view of each one’s individual worth. Time will tell.

However, since the demerger was first contemplated in May, Cookson has issued a profits warning, in October. The company that Vesuvius is most seen as resembling, Morgan Crucible, has issued its own profits warning. As well. the clearest comparator to Alent, AZ Electronic Materials, has also seen slowing growth. In Tempus´s view, Alent looks the better bet, not least because it is heading into higher-margin profits and out of commoditised solder, where sales have been falling for years, while Vesuvius’s performance will be more pedestrian. But he am not sure that either is going too far in the near future.

On Monday, APR Energy said it had signed a new 200 megawatt contract in Uruguay, running until mid 2014. That is a significant contract, as typical coal power station produces around 600 to 700 megawatts. It brought APR’s total new contract wins this year to 569 megawatts and contract renewals to 724 megawatts. In the opinion of the Telegraph´s Questor team the above shows that the investment case for temporary power providers is intact and sound. The world is short of power and demand is growing rapidly in emerging economies, even if it is true that contracts in this business will be lumpy – as its rival Aggreko has also found out. Although volatility in earnings will remain, the long-term prospects are sound. Even so, Questor was disappointed with the accounting issues earlier in the year. For that reason it maintains its hold rating but sees the scale of the opportunity if management gets it right.

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AB

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