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Petrofac shares up 50% in three months


Companies which provide equipment and expertise to the oil industry are beginning to take orders again as oil nudges above $80/bbl. Big oil companies are not quick to start spending, however.

Senior management at big oil companies are, however, being persuaded by the fact that crude oil has now been trading over $50 for two years. This looks more like a trend than a spike. The oil price has now been north of $60 for the last six months.

“This consistency gives the management teams of big oil companies more confidence to sanction spending on projects,” explains Russ Mould, investment director with AJ Bell. “Such confidence is reflected in the $1.7 billion of new orders awarded to Petrofac year to date – a number revealed in its latest trading update.”

Despite an ongoing investigation launched by the Serious Fraud Office in May 2017 into corruption allegations, Petrofac’s shares have advanced over 50% in the last three months.

Petrofac shares have brokers scratching their heads

Brokers remain of mixed opinion on Petrofac shares. Morgan Stanley issued an underweight rating on 16 May, but it also raised its price target to 720p from 475p. Meanwhile Kepler Cheuvreux downgraded its investment rating to hold from buy.

In the last month, Petrofac shares have climbed from 579 to peak at 651 although they were trading at 618 at time of writing.

Petrofac designs, builds, operates and maintains oil and gas facilities and moved into actual oil and gas production projects during the last big oil price boom. Its integrated energy services division has disappointed both company management and investors with lower than expected profits, which had been hit by lower oil prices. The company is taking the opportunity to divest itself of some of its oil fields in Mexico and concentrate on core activities such as onshore engineering and construction.

What some investors may be worrying about, and what may be retarding Petrofac shares, is the Serious Fraud Office investigation in connection with a probe into Monaco-based Unaoil on suspected bribery. The company’s net debt was roughly $600 million at the end of 2017, below the $850 million forecast. It reported a net loss of $29 million in 2017.

The Armchair Trader says

Looking at the six month chart for Petrofac shares, we can see that the SFO investigation and the suspension of the company’s chief operating officer has been weighing on minds, but Petrofac shares have been enjoying an excellent run since February. We’d be looking to see them add another 10-15% in the next couple of months, particularly as oil prices continue to climb.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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