Petrofac fears overdone with SFO fine limited to GBP1bn, recommends Kepler

In May, the SFO launched a criminal investigation into the FTSE 250 oil services company, its subsidiaries and its employees over suspicions of bribery, corruption and money laundering in connection to its use of consultancy services from Monaco-based Unaoil, primarily in Kazakhstan between 2002 and 2009.

Petrofac shares then later in the month the shares plunged to their lowest since 2009 after the SFO accused the company of failing to co-operate properly with its investigation, while chief operating officer Marwan Chedid resigned from the board after being suspended from his role.

Kepler said Petrofac's focus on onshore/downstream activities in the Middle East and Africa EA, mostly national oil corporation clients, was a segment it considered to be "a strong pocket of resilience".

"The company is at a pivotal moment in its history and now its two main challenges are to: 1) refocus its activities on its core business lines by ceding assets and reinforcing its technologies; and 2) reassure investors and clients regarding its execution capabilities and practices, after several unforeseen incidents raised its reputational risk."

Kepler said Unaoil "probably poses the biggest risk, but we think the market has overreacted to this news".

In the short term, analysts believe the SFO probe will lead to an increase in the group’s financial costs and might disrupt any alliance strategy, but expect it to have "a limited impact on the company’s commercial performance and see no balance sheet risks".

The maximum financial penalty could be £1.05bn, implying a 300p impact per share, they added.

But with strong commercial prospects ahead after a tough 2016, Kepler believes order intake is set to pick up in 2017-2019, initiating coverage with a target price of 700p, which came after applying a 300p discount for Unaoil.