Credit Suisse starts Petrofac and Wood Group at outperform

Markets were already looking ahead to European oilfield services companies emerging fitter and leaner from the worst downturn in exploration and production in over a generation, analysts at Credit Suisse said.

"Unlike 2009, this downturn has been sufficiently long to spur behavioural change – a leaner, fitter and more returns-focused industry should emerge. This will take time to be reflected in financial performance but valuations suggest the market is prepared to look well beyond the current eye-of-the-storm," the broker´s analysts said in a research note sent to clients.

"The base from which the sector recovers however is extremely low, and companies must navigate a precarious low-point of the cycle with limited pricing power."

In the same note initiating coverage of the sector, they started Petrofac and Wood Group at 'outperform' with target prices of 1,110p and 850p, respectively, labelling both companies´ shares as their preferred ones in that space.

Their coverage of Hunting was initiated with a 'neutral' recommendation and 500p target and that of AMEC Foster Wheeler - their least preferred option in the sector - at 'underperform' with a target price of 450p.

Credit Suisse said there was "a lot to play for", explaining that it was tracking approximately $140bn of contract opportunities globally for oil field services firms.

On Petrofac, the broker highlighted how the firm was "retreating into a high-quality core with optionality", whereas Wood Group was the "best-in-class early-cycle recovery play and was attractively valued".

The recent performance in AMEC on the other hand had been "excessive" and the headwinds were being underestimated.