Petrofac Ltd

Petrofac Ltd (LON: PFC) is an international company into oilfield services, providing integrated services to the manufacture and processing companies. 

Financial Highlights – Financial Year 2019 (31^st December 2019, USD, million)
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(Source: Annual Report, Company Website)
 
For the financial year ending 31^st December 2019, due to lower revenue generated from engineering & construction business and integrated energy services business, the group’s revenue declined to USD 5,530 million as against USD 5,829 million in the financial year 2018. The business performance EBITDA declined from USD 671 million in the financial year 2018 to business performance EBITDA of USD 559 million in the financial year 2019. The business performance net profit declined by 22 per cent to USD 276 million in FY2019 versus business performance net profit of USD 353 million in the financial year 2018. The reported net profit (post exceptional items and impairments) declined to USD 73 million in FY2019 versus reported net profit (post exceptional items and impairments) of USD 64 million in the financial year 2018. As on 31^st December 20019, the new order intake stood at USD 3.2 billion, and backlog stood at USD 7.4 billion, with net cash of USD 15 million for the period. The total dividend for the share stood at 38 cents in FY2019.

Share Price Performance

Daily Chart as of March 16^th, 2020, before the market close (Source: Thomson Reuters)

Petrofac Ltd shares were trading at GBX 173.55 at the time of writing before the market close (at 8:23 AM GMT) on 16^th March 2020 and down by 5.27% versus the previous day closing price. Stock's 52 weeks High is GBX 530.00 and Low is GBX 168.50.

Valuation Methodology

*Peers: Premier Oil Plc, BW Offshore Ltd, John wood Group Plc, TechnipFMC Plc and Royal Dutch Shell Plc.

*Currency exchange rate taken for 1 US Dollar = 0.80901 GBP.

Valuation Metrics

(Source: London Stock Exchange)
 
As on 28^th February 2020, the EV/EBITDA and Price to Cash flow multiples of the Petrofac Ltd.’s were 2.8x and 2.9x, which was lower as compared with the Oil Equipment Services & Distribution industry of 5.7x and 6.5x, reflecting that the company is trading at a lower multiple as compared to its peers.
 
Growth Catalysts
The company had won many contracts in growing markets like Thailand and India. The company had good organic growth in geographical areas such as Southeast Asia, CIS, Sub-Saharan Africa and India.

Conclusion
The outlook of the market in which the company operates is improving with a busy pipeline, which will be rewarding at the end of FY2020. While the revenue is declining and the lower number of new orders intake, the order backlog is providing good visibility for the revenue in the near future. In E&C division, the net margins are projected to decrease in 2020, reflecting a US$30 million investment in maintaining bench strength and technical capability in 2020 and a higher contribution from contract awards in lower margin markets. This investment will ensure the company can capitalise on improving market outlook.

Based on the decent prospects and supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 150.10 (as on 16^th March 2020, before the market close at 10:50 AM GMT) with a low double-digit-upside potential based on 3.85x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Victoria Oil & Gas Plc

Victoria Oil & Gas Plc (LON: VOG) is a domestic energy supplier. The group is engaged in the gas distribution, exploration, and production business in Cameroon.

Board Changes
On 11th March 2020, Victoria Oil & Gas announced the selection of Mr Roy Kelly. Mr Kelly will be holding the responsibilities of CEO (Chief Executive Officer) of the company effective from 23rd March 2020.

Operations Update (as on 5th February 2020)
The Group announced that GDC, subsidiary of Victoria Oil & Gas Plc, had entered into a non-binding Letter of Intent ("LOI") with New Age Cameroon Offshore Petroleum S.A. for the supply of a minimum of 25mmscfd of gas from the Etinde natural gas and condensate field. GDC would develop downstream pipeline infrastructure which could connect the gas supply to Etinde natural gas. This project would be funded through taking debt. The company is focused on the long-term gas supply which would satisfy Aksa Energy agreement and other future grid power contracts. The Group announced that operations at ENEO's Logbaba site had been suspended by Altaaqa. However, the company decided that GDC would continue to invoice ENEO. The company reported that remediation work to complete La-108 would restart in early 2020.

Share Price Performance

Daily Chart as of March 16^th, 2020, before the market close (Source: Thomson Reuters)

Victoria Oil & Gas Plc shares were trading at GBX 3.99 at the time of writing before the market close (at 9:45 AM GMT) on 16^th March 2020 and down by 0.37% versus the previous day closing price. Stock's 52 weeks High is GBX 16.50 and Low is GBX 2.48.

Conclusion
Some of the risks which can impact business operations are capital constraints, global economic volatility, commodity price risk, legal compliance regulatory or litigation risk, adverse market sentiment, political and country risk. The company expects to finalise a new agreement with ENEO related to payment guarantee security in the coming few days. The focus is now back on growing sales and signing new grid power contracts. In the current period, the company also increased industrial customer gas consumption for thermal use and industrial customer gas for power usage. International Organization for Standardization compliance ("ISO") 9001, 14001 & 45001 audits successfully completed, emphasising the group's commitment to global standards in its management systems. The Group would benefit from securing the long-term supply of gas. The company is focusing on its strategies which could help the company to grow and create value for its shareholders. 

Based on the above rationale, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 3.95 (as on 16^th March 2020, before the market close at GMT 10:55 AM).
 
 
*All forecasted figures and peers information have been taken from Thomson Reuters. 

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