Shareholders in Petrofac (PFC) were presented with a new strategic goal when the oil services group opened its half-year accounts this week: a book-to-bill ratio of at least one. In other words, the group wants to reverse its current trajectory and grow the top line.
That aim, together with repeated assertions that there is a “positive outlook” for tendering activity, helps to explain why Petrofac's shares have re-rated since their Unaoil scandal-induced trough 14 months ago. But six months into 2018, and revenues are down, the order backlog has declined from $10.2bn (£7.9bn) to $9.7bn, and the group’s pivot out of production-sharing contracts continues to impair the balance sheet.
A cursory glance at the $3.3bn of business reportedly won so far in 2018 would suggest the book-to-bill target is on track. But that figure includes a provisional agreement for a $600m engineering contract in Algeria, announced with these numbers. On an annualised basis, Petrofac is on course to book $5bn of new contracts this year, down on the 2017 intake.
Net debt has also ballooned 44 per cent since the end of 2017, to $882m, thanks to the “unwind of temporary favourable working capital movements”, and the seasonal phasing of tax and dividend payments. Specifically, Petrofac has advanced $146m more to its vendors and sub-contractors, while its own contract expenses have declined.
Although this position is expected to unwind again before the year-end, it is worth noting that disposals in the Integrated Energy Services (IES) division are set to reduce the net book value by $352m. That effect may not be fully reflected in 2018 preliminary results, as the sale of stakes in the Chergui gas field in Tunisia, the Greater Stella Area in the North Sea, and a partial disposal of Petrofac’s Mexican contracts could take until March to complete.
But it’s not all gloomy. One of the most crucial measures of a services company – the net profit margin – saw a 170 basis point rise year on year, before factoring in exceptional items. That was partly down to a lower tax rate, but largely due to a swing to profitability for the IES business, where higher equity volumes and prices contributed $16m to the bottom line.
On average, analysts expect adjusted EPS of 83¢ this year, narrowing to 75¢ in 2019.
| PETROFAC (PFC) | ||||
| ORD PRICE: | 669p | MARKET VALUE: | £2.27bn | |
| TOUCH: | 669-669.4p | 12-MONTH HIGH: | 679p | LOW: 396p |
| DIVIDEND YIELD: | 4.4% | PE RATIO: | na | |
| NET ASSET VALUE: | 202¢ | NET DEBT: | 122% | |
| Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2017 | 3.13 | 109 | 20.6 | 12.7 |
| 2018 | 2.79 | -52.0 | -5.0 | 12.7 |
| % change | -11 | - | - | - |
| Ex-div: | 20 Sep | |||
| Payment: | 19 Oct | |||
| £1=$1.29 | ||||
