Berenberg upgrades Petrofac to 'buy'

Analysts at Berenberg upgraded oilfield services provider Petrofac from 'hold' to 'buy' on Tuesday, stating the group was now "emerging into the light".

Berenberg noted that after "a difficult few years", it believes that the outlook for Petrofac has finally started to "brighten" after an investigation by the UK's Serious Fraud Office had been hanging over the company for four years, hampering its ability to win new work.

However, the German bank stated that with this issue now settled, Petrofac had been reinstated on the bid list for the UAE, and it also expects the firm to be able to re-enter other markets over the coming months.

Berenberg, which lowered its target price on the stock from 250.0p to 210.0p, highlighted that this comes at a time when it expects spending and project awards to ramp up across the Middle East, helped by stronger commodity prices, which should enable "meaningful backlog growth" to return.

"While the market may want to see awards before pricing in a recovery, we believe that the company will reach its guidance of more than $4.0bn in revenue by 2025, leaving the stock trading on EV/EBITDA of 5.8x/5.0x for 2022/23E, respectively," said Berenberg.