Jefferies upgrades Petrofac to 'buy'

Jefferies upgraded Petrofac to ‘buy’ from ‘hold’ and lifted the price target to 855p from 745p.

It said the company’s 2015 results emphasised the return to Petrofac’s original and still core business offering, Onshore E&C, in the Middle East.

On Wednesday, the oilfield services provider said its annual profit had plunged due to delays in getting production up and running at its Laggan-Tormore plant and the costs associated with it.

The FTSE 250 company said it made a net profit of $9m (£6.4m), down from $581m in 2014.

Jefferies noted the overall OEC backlog was confirmed as $12.5bn and said clarification that $4.6bn of that is for revenue execution in 2017 is better than it had expected.

As a result, Jefferies upped its estimate for 2017 OEC revenue by 6% to $5.6bn.

“Legacy contract close out and confirmation of an improved cash cycle due to reigning in expansionary capex (IES, Offshore vessel) are both positives and provide for dividend certainty plus balance sheet improvement,” said Jefferies.

It added that while growth from 2018 remains unlikely, the path to that point is better than peers.

At 1413 GMT, Petrofac shares were up 5.7% to 822.00p.