Petrofac's (PFC) shares fell on Monday after reporting delays to two major contracts and downgrading its profit forecast for next year. With the contracts now not expected to start until 2014, investors are facing more risk as they have an uncomfortable year-long wait before a major ramp up in work, The Daily Telegraph's Questor column noted. Petrofac's share price has become increasingly reliant on the two delayed projects, the $2.5bn Upper Zakum project in Abu Dhabi, and the Berantai contract in Malaysia. "Questor was wrong to keep Petrofac as a buy at £13.73 in August as, since then, shares have fallen 13 per cent," Questor said. "Now, with little growth expected next year and shares trading at 12.3 times adjusted forecast earnings, falling to 9.8 times in 2015, they don't represent a compelling investment case. Hold."
Investors punished the company after it warned that net income for 2014 might even be flat, instead of expanding at a 16 per cent clip as the analyst consensus had expected. Nevertheless, the stock may have got off lightly compared to how rivals such as Aker Solutions and Saipem fared following their own warnings. Petrofac retains a lot of operational and financial heft - its order backlog of over $14bn has been growing significantly more strongly than its rivals', and it has modest net debt. That will stand it in good stead given the choppy operating environment. Large customers have been delaying projects and screaming for cost reductions. On the other hand, Petrofac has been growing more strongly because it has taken on execution risk alongside its customers. It has also started taking stakes in upstream assets on which it is working. That explains at least in part why its shares have trailed its UK rivals such as Wood Group and Amec over the past three years. Yet its 2014 price/earnings multiple of 12 is still a discount to the sector. That is not going to close until its earnings become more predictable, the Financial Times' Lex column says (Last IC rating: Hold, 18 Nov).
The latest halfway figures from support services firm Mitie (MTO) provided some reassurance to those who harbour doubts that its margins are sufficient to justify the company's high rating. Mitie is almost entirely out of the low-margin mechanical and electrical engineering work that was the original core business. There is the prospect of growing this business by taking advantage of the trend towards larger contracts and fewer providers. Furthermore, the interims reported organic revenue growth ticking over at 5.1 per cent, which seems sustainable. The shares, up 3p at 317p, have seen a strong upturn since the summer as some of those concerns in the City have been allayed. They sell on about 13 times' earnings and yield about 3.5 per cent. There seems to be no reason why that mid-single-digit revenue growth should not continue, boosted by selected acquisitions, while the prospects for healthcare are attractive. The shares are not cheap historically, but look set for steady progress. Hold, at least; buy on weakness, says The Times' Tempus (Last IC rating: Hold, 18 Nov).
Business press headlines:
A crash in house prices is one of the fastest-growing risks for Britain's lenders, according to a survey by the Bank of England. Banks, hedge funds and insurers told the central bank that the housing market was becoming a "bubble" that posed dangerous threats to financial stability. They also warned, in the Bank's half-yearly Systemic Risk Survey of finance professionals, that a "snapback" in interest rates from the historic low of 0.5 per cent to more normal levels would hit borrowers and send shares, property and debt markets reeling, The Times reports.
Liv Garfield, responsible for the £2.5bn rollout of super-fast fibre broadband as BT's boss of Openreach, is leaving to become chief executive of FTSE 100 water company Severn Trent (SVT). Garfield, 38, will take up the role in spring 2014 following the retirement of Tony Wray. Her annual salary will be £650,000, with a 25 per cent pension contribution taking the package up to £812,500, and will also be eligible for an annual bonus of up to 120 per cent of her £650,000 salary. The surprise move will be considered a blow for BT, according to The Guardian.
A US Senate hearing on the "risks, threats and promises" of virtual currencies sparked a new leg up in the price of Bitcoin, the experimental currency which has risen by more than 5,000 per cent in value this year. An intervention by Ben Bernanke, chairman of the Federal Reserve, enabled Bitcoin's enthusiasts to put the spotlight where they believe its potential value lies, namely as a cheaper alternative to the current system for transferring money around the world, the Financial Times says.
The company behind iconic British treats such as Jammie Dodgers and Wagon Wheels has been snapped up by a Canadian pension fund in a deal thought to be worth almost £350m. Burton's Biscuits, which employs some 800 workers at its Sighthill plant in Edinburgh, has been sold to Ontario Teachers' Pension Plan (OTPP). Jo Taylor, head of the pension fund's London office, said the plan was to support growth plans at the business, with the possibility of using OTPP's formidable firepower to make strategic acquisitions, The Scotsman says.
JPMorgan Chase (JPM) is expected to pay around $4bn as part of a compensation agreement that could hit $13bn as talks to finalise the deal took place last night between the United States Government and the investment bank. The final settlement with the US Justice Department, which could be announced today, will include the previously reported $4bn that was agreed between JPMorgan and the Federal Housing Finance Agency, writes The Times.
British companies trying to plug the black holes in their final salary pension schemes have spent £182bn since the beginning of quantitative easing in 2009. The introduction of the Bank of England's 'money printing' economic stimulus measure has taken a substantial toll on firms running lucrative defined benefits pension schemes. They pumped £29bn into reducing their deficits in 2012/13. This is actually a fall on the £36bn paid in 2011/12, but employers have made an additional £18bn in 'special' payments to ensure their shortfalls don't widen even further, according to The Daily Mail.
