UniCredit Bank Reiterates its BUY rating on Petrofac

October 10 00:00 2011

LONDON, October 10 (RainbowNewsLine.com) – Analyst David Thomas of UniCredit Equity Research maintains his BUY rating on the shares of Petrofac (LSE: PFC). The target price is unchanged at £18.35 with cost of equity standing at £6.7%. The share’s 12-month high stood at £16.85 and low at £11.08.

The analyst’s decision to reiterate buy recommendation was mainly due to company’s 16% compounded earnings growth of 2010-2015E, the backlogs reflecting earnings potential visibility and value addition from IES contracts. The analysts mentions the following points to substantiate his BUY rating on Petrofac.

  • With IES support, company’s management aims at doubling the underlying earnings in 2010-2015.
  • The type of contracts IES has entered got minimal risk with strong returns. The portfolio is immune by turning into less macro sensitive and with less capital at risk. The estimated Internal Rate of Return (IRR) across all contracts is over 20%.
  • According to the valuation, the share trades at a sector discount of 8% comparative to historical values.

As restructuring evolves from 1 Jan 2012, the market is going to witness IES contribution up to a third of expanded 2015 earnings through a balanced set of contracts. The reasons that could arouse shares movement are by boosting the backlogs; maintaining the major orders and further IES deals. IES segregates Petrofac from its peers in the industry and based on superior growth outlooks the share will re-rate in coming months, the analyst adds.