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Bribery conviction hits Petrofac order book

Company reeling from former sales chief’s conviction on Iraq and Saudi Arabia bribes
August 28, 2019

Petrofac's (PFC) future revenue estimate on uncompleted contracts/backlog has fallen by $1bn (£820m) to $8.6bn since the end of 2018 after Saudi Arabian and Iraqi bids were suspended in February, though it still has around $13bn of bid opportunities due for award in the second half of the year.

IC TIP: Sell at 399p

The oil and gas services group has been operating under the scrutiny of the Serious Fraud Office (SFO) for the past two years, with employees still under investigation and its former global head of sales David Lufkin convicted on bribery charges in February. 

It also said new orders had been hit by “challenges” in Iraq and Saudi Arabia. In an analyst call, chief executive Ayman Asfari said both countries had a lot of questions about Mr Lufkin paying $6.2m for two contracts in Iraq and $45m for three contracts in Saudi Arabia. This meant Petrofac missed out on tenders going at the time. 

Away from the backlog and risk of further SFO action, revenue for the half was up 1 per cent as higher income from Iraq, Russia and Malaysia made up for Saudi payments falling by almost half to $280m. Petrofac recorded net cash of $69m, down from the end of 2018 but well above the $100m net debt expected by Morgan Stanley. The net profit margin fell from 6.9 per cent a year ago to 5.5 per cent in the first half. The largest division, engineering & construction, saw its net profit margin come down from 7.9 per cent a year ago to 6.5 per cent. 

Consensus estimates for full-year cash profit and reported EPS are $557m and 85¢, respectively, falling to $540m and 83¢ in 2020.

PETROFAC (PFC)   
ORD PRICE:399pMARKET VALUE:£ 1.34bn
TOUCH:399-400p12-MONTH HIGH:678pLOW: 374p
DIVIDEND YIELD:7.8%PE RATIO:7
NET ASSET VALUE:226¢NET CASH:$69m
Half-year to 30 JuneTurnover ($bn)Pre-tax profit ($m)Earnings per share (p)Dividend per share (p)
20182.79-52-5.012.7
20192.8219341.212.7
% change+1---
Ex-div:19 Sep   
Payment:18 Oct   
£1=$1.22