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Petrofac: a case for the defence

Half-year results gave the oil services company a chance to talk about something other than the SFO probe
August 30, 2017

This we know: Petrofac (PFC) is being investigated by the Serious Fraud Office (SFO). Its chief operating officer Marwan Chedid has been suspended, and the criminal agency has questioned the group’s co-operation. Chief executive Ayman Asfari, who with Mr Chedid was questioned by the SFO while under arrest, has been blocked by the board from “engaging with or liaising with agents and consultants”. Last week, Italian regulators alleged Mr Asfari engaged in insider dealing in a separate matter, a claim he denies.

IC TIP: Sell at 433p

It is through this thicket of scandal that investors were asked to peer this week, as the oil services company unveiled half-year results. They revealed SFO-related legal costs of just $6m (£4.6m) in the period, roughly equal to the 2016 outlay and despite the commitment of “very significant resources” to the investigation. The total eventual cost, understandably, is indeterminate.

But what of current trading? Project completions meant the order backlog fell by $1.8bn to $12.5bn, although that key metric would have looked brighter had it reflected a $2bn, 47-month refinery contract awarded to Petrofac and joint venture partner Samsung Engineering in August.

Like the industry it serves, Petrofac reduced capital expenditure to $110m – a fall of 44 per cent. Despite this belt-tightening, net working capital outflows of $296m led to negative free cash flow, and resulted in a 59 per cent hike in net debt to $984m. Balance that with a $304m drop in trade and other payables at the halfway mark, and average analyst forecasts for full-year pre-tax profit of $440m and adjusted EPS of $1.04 look less fantastical.

PETROFAC (PFC)   
ORD PRICE:433pMARKET VALUE:£1.5bn
TOUCH:432.5-433.5p12-MONTH HIGH:979pLOW: 345p
DIVIDEND YIELD:10.1%PE RATIO:32
NET ASSET VALUE:299¢NET DEBT:92%
Half-year to 30 JunTurnover ($bn)   Pre-tax profit ($m)Earnings per share (¢)Dividend share (¢)
20163.89583.522.0
20173.1310920.612.7
% change-20+88+483-42
Ex-div:21 Sep   
Payment:20 Oct   
£1=$1.29