Broker snap: Investec downgrades Petrofac due to backlog issues

26th Jun 2012 11:32

Investec has downgraded its rating for oilfield services group Petrofac from 'buy' to 'hold', saying that caution over 2013 still remains as the backlog continues to decline."We were nervous ahead of the trading update as contract wins in the key ECOM division in 1H12 have not been at a level required to rebuild the backlog to underpin 2013 forecasts. There has been some progress with a new project in IES, but this division has yet to demonstrate its earnings capability," the broker said in a research report.Based on the contracts signed in the year so far, Petrofac expects its backlog ("which underpins 2013 forecasts", says Investec) to be around $9.1bn by the end of the first half (June 30th), down slightly from $10.8bn at the start of the year. "We still believe in the medium-term investment case for Petrofac and have little doubt that it can meet its medium-term objective of doubling recurring 2010 group earnings by 2015, but the shares are unlikely to perform in a drifting oil price environment (even though this has little tangible impact on PFC's business) and whilst the ECOM contract wins are failing to replace the existing backlog, increasing uncertainty for 2013 forecasts."The target price is slashed by over a fifth from 1,900p to 1,500p.BC