Deutsche Bank reiterates 'hold' on Petrofac

The bank said the oil and gas services company is “slowly getting back on course but end market recovery remains elusive”.

Petrofac’s end markets offer little evidence of any pickup despite projects supposedly moving closer to realising awards, Deutsche Bank said.

Deutsche Bank said since there is a scarcity of awards, focus remains on reducing capital intensity and net debt via the disposal of Integrated Energy Services assets. Petrofac has exited the Berantai RSC contract in Malaysia and the Ticleni PEC contract in Romania to refocus on its core markets and reduce net debt.

“But these processes are unwieldy and likely to drag, weighing on earnings and crucially sentiment,” the bank said.

“The valuation isn't stretched but getting back to its roots is slow and signs of an end market pickup is unclear,’ hold’.”

The bank’s increase to its price target mainly reflects a reduction in its estimated cost of capital. It added: “Given the uncertainties in navigating back to its roots and also with respect to its core end markets; implied valuations are not overly compelling at 14x PE, 0.8x EV-Sales and 7x EV-EBITDA ‘18, on our estimates, which we find are largely in line with long-run averages.”

Shares fell 2.04% to 841.50p at 1016 BST.