Oil services firm Kentz (KENZ) edges up 1.3% to 766.5p as it announces a material contract win in Australia.


The $570 million, 30-month award for electrical and instrumentation construction work on the Icthys liquefied natural gas (LNG) project boosts a bulging order book by 14%, thereby providing greater visibility on future revenues. It follows on from a $320 million package of work won on Icthys in late February and takes the total value of contracts secured on the development to around $1 billion. It could also fit nicely with Kentz's work on the Gorgon LNG project in Western Australia which is set to wind down from the middle of next year.


Alongside last month's (24 Mar) buoyant full-year numbers the company had already revealed an increase in the order book from $3.5 billion at the year-end to $4.1 billion by the end of February. Kentz has an excellent track record of turning a pipeline of potential work into awards and awarded contracts into cashflow. As such we flagged the company as our core holding in our review of the wider sector late last year (even if we displayed excessive caution on the stock at the time on valuation grounds).


Investec analyst Neill Morton leaves earnings estimates unchanged but reiterates his 'buy' advice and 810p price target. He says: 'We estimate that this adds 14% to Kentz’s order book and underpins visibility into 2017. However, we assume this award was implicit in Kentz’s 5% upgrade to 2014/15 guidance at the time of its recent full-year results and are not changing our forecasts or target price.'


Numis says the deal is positive for Kentz, 'providing visibility to 2017 and further strengthens Kentz's position in the Australian LNG market, particularly as the market transitions over the next years towards a maintenance driven market, as a number of major projects complete, putting Kentz in prime position to win these contracts in the future.'

Issue Date: 07 Apr 2014