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Petrofac upgraded back to ‘Buy’ by Kepler Cheuvreux following “reassuring” first half trading

Analysts at the European broker said most of their concerns had been alleviated by a trading update released on Tuesday following a downgrade of the stock in mid-May

Offshore oil rig
The broker left its target price for the oil services group unchanged at 600p

Petrofac Limited (LON:PFC) has been upgraded to ‘Buy’ from ‘Hold’ by European broker Kepler Cheuvreux following what it dubbed a “reassuring” trading update for the first half of the year.

Analysts said the FTSE 250-oil services group’s share price had declined by around 20% since it downgraded the stock in mid-May, mainly on concerns over the start of its Duqm project and the failure to issue a US$300mln bond as well as speculation around a potential lack of liquidity and upcoming capital increase.

READ: Petrofac sees good revenue visibility as new order intake gains

However, the broker said since then Petrofac had received full notice to proceed with the Duqm refinery while management confirmed it expects the E&C business’s net income margin to be 7-8%, meaning that this delay did not weigh a lot on the group’s earnings.

Regarding the need for liquidity, Kepler said the company’s net debt was under control, with the liquidity position reinforced by a comment from Petrofac’s chief financial officer that “an equity offer is absolutely not on the table”.

Looking forward, analysts said the second half of the year should be positive, saying that Petrofac was “chasing around US$20bn of projects that should be awarded to the market in H2…meaning that H2 order intake is very likely to be above H1”.

In its trading update released on Tuesday, Petrofac said it was well-positioned for the second half with good revenue visibility as it recovers after a difficult 2017.

The group also revealed that new order intake in the year to date was US$1.8bn, compared to US$1.7bn last year.

In mid-morning trading Wednesday, Petrofac shares were up 2.6% at 541.4p.

Quick facts: Petrofac Limited

Price: 357.6 GBX

Market: LSE
Market Cap: £1.24 billion

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