Petrofac surges on Societe Generale upgrade

Petrofac was given a shot in the arm by Societe Generale on Thursday, as the bank upgraded its stance on the stock to ‘buy’ from ‘hold’.

“We are taking advantage of yesterday’s announcement of Schlumberger’s acquisition of Cameron to upgrade Petrofac,” it said.

“We see the Schlumberger-Cameron deal as the second game changer in one year, forcing other players like Saipem and Petrofac to react if they don’t want to miss out on the potential rebound of the offshore market in 2017-2018.”

It said this could lead Petrofac to either strengthen/consolidate its currently weak marketing alliance with McDermott or be taken over.

However, SocGen said its main reason for upgrading the stock is that it considers it to be more resilient than peers. It said the first-half results, which announced a sustained interim dividend and showcased well-managed net debt levels have strengthened its view.

It added that Petrofac has a lower pension deficit and less goodwill than peers, noting that academic research has shown that stocks with high goodwill levels have tended to underperform until management books what are deemed to be necessary impairment charges.

At 1136 BST, Petrofac shares were up 6.7% at 847.50p.