Deutsche Bank downgrades Petrofac to 'sell'

Deutsche Bank has lowered its stance on oilfield services group Petrofac from ‘hold’ to ‘sell’ and cut its target price from 890p to 875p, suggesting that the recent rise in the stock was “unwarranted optimism”.

Shares have risen 15% on hopes that Engineering and Construction (E&C) activities are past the worst and entering a period of backlog-led profit growth, as well as rising optimism of a capital return led by possible Integrated Energy Services (IES).

The broker said it was skeptical on both points, given that E&C margins are set to fall further through to 2017 and any monetisation of IES through divestments could be “gradual, possibly dilutive”.

Due to the $220m anticipated losses for 2015 from the Laggan-Tormore gas plant in the Shetlands, Deutsche Bank has slashed its earnings per share forecast for Petrofac this year from $1.20 to just $0.70.

“With 10% downside to our base-case we downgrade to ‘sell’. The key risks remain project execution,” it said.

The stock was 2.3% lower at 950.5p by 10:50.