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Debt and revenue up at Petrofac

The oil services group has posted a strong set of half-year numbers, though a greater strain has been placed on the balance sheet.
August 30, 2016

Amid some very challenging conditions, oil services group Petrofac (PFC) managed to buck the industry trend and increase revenue by more than a fifth in the first six months of 2016. That helped the company swing to adjusted net profit from an $133m (£101m) loss in the same period last year, though exceptional items still weighed on the bottom line.

IC TIP: Buy at 870p

Investors can be relieved that a line has finally been drawn under one continual source of impairment charges. That's because the disastrous Laggan-Tormore project, which incurred another $101m charge in the period, is now over after Total confirmed completion of work at the Shetlands site. With that out of the way, the key engineering and construction division can concentrate on projects including the In Salah fields development in Algeria, processing train work at Badra in Iraq, and final stage work on the SARB3 project offshore Abu Dhabi.

The division's higher work load has come at the expense of free cash flow, as an increase in work in progress in the period caused a $602m operating cash outflow. That, together with dividend payments and additional investments means net debt has expanded 28 per cent so far this year.

The fact that the record backlog seen at the end of 2015 has already declined 16 per cent to $17.4bn is also slightly worrying, given that the market expects Petrofac to book revenues of $7.8bn this year. Investors could be forgiven for wanting greater earnings visibility beyond 2017, though this is still a high level of orders by historical measures. Management will have taken further encouragement from the award of two major three-year deals since the end of June, for the provision of engineering support services and personnel for North Sea-based Repsol Sinopec, as well as an operator contract for Hurricane Energy's (HUR) exploration of the Lancaster field.

According to Bloomberg, the market expects full-year adjusted EPS of 95.6¢ and pre-tax profits of $421m, rising to $1.23 and $521m in 2017.

 

PETROFAC (PFC)

ORD PRICE:870pMARKET VALUE:£3.01bn
TOUCH:869.5-870.5p12-MONTH HIGH:1,016pLOW: 635p
DIVIDEND YIELD:5.8%PE RATIO:na
NET ASSET VALUE:328¢NET DEBT:76%

Half-year to 30 JunTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20153.18-183-53.522.0
20163.8958.03.5322.0
% change+22---

Ex-div: 22 Sep

Payment: 21 Oct

£1=$1.31