ii view: Probe is damaging Petrofac's order book

Oil services company Petrofac reports decent results, but SFO investigation remains an overhang.

Half-year results  

• Revenue up 1.3% to $2.82 billion
• Adjusted profit (EBITDA) down 8.7% to $305 million
• Reported net profit of $139 million, up from a loss of $17 million
• New order intake down 39% to $2 billion
• Net cash of $69 million, up from net debt of $900 million
• Interim dividend unchanged at 12.7 US cents per share

Chief executive Ayman Asfari said:

"Petrofac has delivered good results that reflect solid operational performance across the business.

"New order intake year to date has been impacted by recent challenges in Saudi Arabia and Iraq.  Looking forward, the group has a busy tendering pipeline with around US$13 billion of bid opportunities due for award in the second half of the year.

"We remain committed to our strategy of delivering best-in-class execution for our clients and enhancing returns for our shareholders by reducing costs, driving digitalisation, increasing local content, improving cash conversion and divesting non-core assets.  These ongoing initiatives will improve our competitiveness in core and growth markets, as well as best position the business for a return to growth in the medium-term."

ii round-up:

Petrofac (LSE:PFC) is a service provider to many of the world's leading integrated, independent and national oil and gas companies. It designs, builds, operates, maintains and manages oil and gas facilities internationally. 

Active both on and offshore and employing over 11,000 people, Petrofac operates across the three divisions of Engineering & Construction, Engineering & Production Services and Integrated Energy Services.

An ongoing investigation by the UK's Serious Fraud Office (SFO) into allegations of bribery overshadow these first-half results. 

New order intake fell by 39% to $2 billion, with both its important markets of Saudi Arabia and Iraq remaining subject to contract probes. 

The company's total backlog of orders fell to $8.6 billion from $9.7 billion last year. Outlook comments point to lower than expected revenues in 2020, given reduced new orders. 

More favourably, business disposals helped turn a net debt position to net cash, while the interim dividend was held at 12.7 US cents. 

The share price declined by over 3% in late morning UK stock market trading. 

ii view:

As a service provider to many of the world's leading oil and gas companies, customer demand is linked to the volatile oil price. Higher prices potentially generate business and vice versa. Other factors outside of management's control such as wars and geopolitical tensions also often need to be navigated. Currently, a bribery investigation and its impact on Petrofac's ability to win new business add to the mix. 

For investors, a historic dividend yield in the region of 7% (not guaranteed) and a forward price/earnings (PE) ratio below both the three and 10-year averages offer attraction. But with the SFO investigation ongoing and concerns for global economic health influencing the oil price, some caution is warranted here. 

Positives: 

• Moved to net cash from a net debt position
• Cost reduction being pursued

Negatives:

• Investigated by UK authorities for allegations of bribery
• Factors outside of management's control - geopolitical tensions, wars, oil price

The average rating of stock market analysts:

Strong hold