JP Morgan stays ‘overweight’ on Petrofac, says bid pipeline ‘growing and accelerating’

By Alexander Bueso

Analysts at JP Morgan reiterated their ‘overweight’ recommendation for shares of Petrofac following a meeting with the oilfield services outfit’s management during the preceding week.
Management’s highlighting of higher odds of larger scale awards and confidence as regards their ability to beat a book-to-bill ratio of 1.0 into year led the analysts to retain their conviction in the group’s ability to beat its peer group.

They conceded that the company’s steer on free cash flow over the back half of the year and working capital situation had “increased pressure on a cash flow turnaround from 1H23, which is a headwind to the investment case.”

But cash flows from its Integrated Energy Services unit offered line-of-sight on an improvement.

As well, cash advances on new contracts and commercial close outs could turn sentiment around, they said.

Furthermore, the bid pipeline was “growing and accelerating”.

“Indeed such is the volume of work being planned by certain key customers, that beyond the orderbook growth that we look for in 2H22 and 2023, PFC may see its E&C division benefiting from longer duration agreements.”

JP Morgan had a 175.0p target price on the shares.

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