Thanks in large to the financial clout of those it serves, energy focused support services company Petrofac (LSE, PFC) has raced ahead throughout 2009. Both the company’s order book and bid pipeline continue to strengthen and Petrofac currently stands as the fifth strongest performer on the FTSE 100 for 2009, with shares having increased by more than 175% so far this year.
As we have stated on previous occasions, although a robust oil price certainly bodes well for Petrofac, it is not the be all and end all. As long as the oil price remains ‘high’ and the company’s clients remain active, Petrofac’s cash register will continue to tick over.
In a recent trading statement management announced that the group expects to deliver profit after tax for the year of at least US$330 million, which represents year-on-year growth of around 25%. During 2009 the company’s differentiated and competitive offering helped secure more than US$6 billion of new contracts in the Middle East, North Africa and the UK North Sea.
Management will no doubt be letting their hair down at this year’s Christmas party as Petrofac’s total backlog as at the end of the year is expected to be approximately US$7.8 billion, a significant improvement on last year’s figure of US$4 billion. It would seem that Petrofac has coasted through 2009 oblivious to the woes that have forced businesses everywhere to recapitalise and restructure strategy.
Whilst investors may look back on 2009 with affection looking ahead, remarkably the company has room for improvement.
Petrofac’s Engineering, Training Services and Production Solutions business may be carrying a backlog into 2010 but activity levels throughout the year have generally been subdued. The backlog of US$0.3 billion is in fact lower than last year’s US$0.5 billion but management are in the process of implementing initiatives which will lead to gradual improvements.
Everywhere else though, Petrofac’s performance has been something to behold.
The company’s Engineering & Construction division has secured orders to the tune US$6 billion (a record level), thanks to a robust relationship with clients, an outstanding track record and established presence in the Middle East and North Africa. Meanwhile, the group’s Offshore Engineering & Operations division has been successful in securing a whole host of new contract awards whilst performance at Energy Developments has been underpinned by robust oil production from the Don Fields.
The company is highly cash generative and looks set to end the year with a healthy cash balance of around US$1.2 billion. Plenty then to not only sustain the dividend but also to hit the acquisition trail with.
The company's clients, who include national oil companies as well as heavy hitters from the private sector, remain committed to investment and Petrofac’s broad offering is strengthening its current relationships. In Saudi Arabia and Abu Dhabi alone, the company has US$100 billion worth of projects in the pipeline; throw into the mix a high level of operational expertise and a firm grip on cost control, earnings over the long term look extremely secure.