Petrofac PFC.L is a service provider to the oil and gas production and processing industry. The Company designs and builds oil and gas facilities; operates, maintains and manages facilities and trains personnel; enhances production, and develops and co-invests in upstream and infrastructure projects. PFC operates through three segments: Engineering & Construction, Engineering & Production Services, and Integrated Energy Services (IES) business. With around 13,000 employees, the Company operates out of seven strategically located operational centres, in Aberdeen, Sharjah, Abu Dhabi, Woking, Chennai, Mumbai and Kuala Lumpur and has a further 24 offices worldwide.
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On Dec 14th 2017, PFC issued a trading update ahead of its FY results due to be published on March 1st 2018. PFC confirmed it was trading in line with expectations, and said year to date it had received $5.2bn in new orders. Debt is also forecast to be in line with expectations at $850m. CEO Ayman Asfari said PFC “had seen a recovery in new order intake in 2017”, adding that “tendering activity remains high, we continue to maintain our bidding discipline in competitive markets and we have a healthy order backlog.” “Our portfolio is in good shape, and we remain focused on project delivery and maintaining our cost competitiveness through operational excellence. This – together with measures we are taking to strengthen our balance sheet – positions us well.”
The strength in the underlying PFC business flagged indicators across VectorVest metrics during Q4 2017, and the upbeat December trading statement saw the GRT (forecasted Earnings Growth Rate) for PFC log 19.00%, which VectorVest considers to be very good. GRT reflects a company’s one to three year forecasted earnings growth rate in percent per year. The RT (Relative Timing) metric, (an accurate stock price trend indicator), logs PFC at 1.44, which is excellent on a scale of 0.00 to 2.00, although the share has a low RS (Relative Safety) value, which means that the opportunity is only for those traders who can manage risk proactively with a stop loss order. In terms of value, the measure of a stock’s current worth, PFC has a current value of 645p per share. Therefore, it is undervalued at today’s price of 510p per share.
The chart of PFC.L is shown above over the last six months of trading. The green line study in the window above the price reflects the VectorVest valuation. The share has found strong support at 400p and charted a treble bottom basing pattern at this level. The share has broken upwards through a 26 week high and is on a BUY recommendation on VectorVest.
Summary: Former stock market darling Petrofac has endured a few difficult years but the steady recovery in the oil price and bumper $5.2bn order book strongly support the rerating argument. Moves to strengthen the balance sheet are backed by strong earnings growth, which combine to give rise to an excellent RT rating and a valuation of 645p. The share has a low value of Relative Safety (RS) and this means that the opportunity is only for those traders who can manage risk proactively with a stop loss order.
Dr David Paul
January 3 2018
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