Oil services firm Petrofac (PFC) is cratering – down 23.4% to 914.5p – as it issues a major profit warning. The group announces net profit will be at the lower end of the $580 million to $600 million guidance for 2014 and says 2015's total will fall more than a quarter to $500 million the $675 million which had been pencilled in.
Much of the blame for the warning can be laid at the door of the Integrated Energy Services (IES) division which manages oil fields directly. Previous guidance for this part of the business was based on an oil price of $100 a barrel against the current level of around $80. The company says that every $1 decrease or increase in the oil price equates to a $2 million movement in net profit. It also blames poor execution on 'a small number of projects' for its woes.
On a more positive note, the engineering and construction side of the business remains buoyant with a record order book of some $21.2 billion. The IES arm was launched to some fanfare in 2011 under Andy Inglis (BP's (BP.) former head of exploration and production) and was a key plank in a five-year target to double net profit to $860 million by 2015. A plan which now lies in tatters. Inglis left to become chairman and chief executive of Dallas-based Kosmos Energy (KOS:NYSE) in January 2014.
Numis reiterates a hold recommendation on the stock and says it expects to revise its £11.43 price target downwards. It comments: Petrofac's (lack of) growth outside core engineering and construction in the Middle East has led to material de-rating. It is hard to see how this changes materially in 2015, and whilst headline PE (price to earnings ratio) remains one of the lowest in the sector we prefer small-cap oil services companies for earnings growth / market share growth given the macro commodity backdrop.'
VSA Capital says: 'we remain cautious on Petrofac at this point'.