Berenberg sees 'attractive' investment case at Petrofac

14th Feb 2014 11:37

Shares in Petrofac received a boost on Friday after Berenberg analysts highlighted the stock's "attractive" risk-reward profile, as they upgraded their rating from 'hold' to 'buy' and hiked their target price from 1,370p to 1,740p.The broker pointed out that Petrofac has de-rated over the last year due to doubts about the sustainability of margins in the Onshore Engineering & Construction division and the high-risk entry into the subsea market."We expect these concerns to ease in the medium term and believe that Petrofac has the ability to deliver strong through-cycle earnings growth," said analysts Asad Farid and Jaideep Pandya.They said that the stock is "cheap" on valuation terms, trading at just nine times earnings on consensus estimates for 2015 - "this implies an 11% discount to closest peer Saipem which we think is excessive"."We see any price weakness as a good entry point for investors."Farid and Pandya foresee a "sharp improvement" in Onshore Engineering & Construction margins in 2016, based on up to $5.5bn of possible high-margin contract wins in Turkmenistan, Kazakhstan and Algeria this year.Meanwhile, concerns about Petrofac's offshore strategy should ease as the market realises that the group is not going into full-on competition with dominant peers Subsea 7 and Technip, they said. Instead, it could have plans to expand into the "key deep water region" of South-East Asia."Petrofac in our view will have a competitive advantage as its larger peers are under-resourced and Petrofac has far stronger linkages with leading national oil companies such as Petronas in Malaysia."The stock was 3.2% higher at 1,305.32p by 11:34.BC