Kepler upgrades Petrofac after 'reassuring' update

Petrofac got a boost on Wednesday as Kepler Cheuvreux upgraded the stock to 'buy' from 'hold' following a drop of around 20% in the share price since it last downgraded the company.

Kepler attributed the drop in the share price since mid-May to uncertainties around the start-up of the Duqm project in Oman, failure to issue a $300m bond and speculation around a potential lack of liquidity and upcoming capital increase.

However, it said Tuesday's first-half trading update was "reassuring" and it's now happy to jump back in on Petrofac.

It noted that Petrofac received the full notice to proceed on the Duqm refinery this month, while management confirmed it expects the E&C business's net income margin to be 7-8%, versus Kepler's estimate of 7.1% for 2018, meaning that the delay did not weigh much on the company's earnings.

In addition, net debt is under control and there is no need for new equity, Kepler said. "Net debt is said to be close to $0.9bn at the end of June and should decline in H2, thanks to working capital movement," it said.

Kepler also highlighted "huge" commercial opportunities for the second half, with $1.8bn of orders secured year-to-date and bookings close to $2.2bn including the potential Majnoon contract in Iraq.

At 1445 BST, the shares were up 4.3% to 549.60p.