Petrofac upgraded to 'buy' from 'hold' by Canaccord

Petrofac’s stock was on Tuesday upgraded from ‘hold’ to ‘buy’ and its target price raised from 775p to 850p by Canaccord Genuity.

Canaccord said with shares down more than 11% over the past three months against a 10% increase in the sector, the oilfield services company was a risky but attractive value-for-money stock.

“There have been incremental negatives, most obviously the $100mn liquidated damages on the Laggan-Tormore project: but we believe that at the current valuation, that enough is in the price,” said analyst Alex Brooks.

“Petrofac's strengths are easy to list: it has a different risk profile to the rest of the UK oil services sector, but its performance track record suggests that this is not necessarily worse, particularly if the ill-starred diversification efforts of the past cycle do not recur in future.”

Brooks said the valuation has reached a “compelling level” at less than 6x 2017 price to earnings ratio, excluding integrated energy services.

However, he noted that a substantial risk included being named in an investigation by the HuffPo / The Age into a Monagesque company, Unaoil, that allegedly facilitated the bribery of public officials.

The UK's Serious Fraud Office and the Monaco police have been investigating further, and Petrofac has appointed Freshfields and KPMG to conduct its own investigation.

While Canaccord expects “uninspiring” first half results due to weak order intake, the second half is forecast to prick up with a significant number of potential new contracts including some major Middle Eastern awards.

Brooks said the completion of Laggan-Tormore removes one negative, the FPF1 for the Stella project should achieve sailway imminently, and several of Petrofac's assets are likely to be sold or move closer to sale in the period. “All these are positive triggers.”

Shares in Petrofac fell 2.20% to 732.50p at 0924 BST.