Credit Suisse ups Petrofac to 'outperform'

29th Sep 2014 10:19

Shares of oilfield services firm Petrofac have been de-rated too far while the outlook is still robust, even when accommodation is made for some of the company's weaknesses.The stock is now at a four-year low, near 1,000p, and trading on 8.2 times' the estimated 2015 price-to-earnings multiple. That represents a 20% discount to the wider European sector. Other fundamental ratios tell much the same story, Credit Suisse writes. The company, for example, is on just 5.1 times' next year's EV/EBITDA multiple – for a 30% discount to its historic average.The latest directors' dealings are also supportive of the investment case, as is the company chief's 18% holding. Together with a solid balance sheet that means that the firm's dividend pay-out is "underpinned".The key risk to Credit Suisse's positive rating is the trading update due out on 16 December. Petrofac then needs to deliver on 77% of its earnings guidance for fiscal year 2014, "which appears challenging". Yet backlog for execution covers 75% of the revenues forecast for next year, the broker adds.As a result of all the above Credit Suisse has moved to an 'outperform' recommendation on Petrofac, from 'neutral' beforehand, but stuck with its price target of 1,340p.The latter factors in a discount of approximately 10% to account for a "structural de-rating for corporate management concerns and falling returns on rising investments".