Investment Column: Petrofac can fuel up investor returns

Petrofac

Our view: buy

Share price: 1500p (Unchanged)

The next financial results from the oil and gas services company Petrofac are due in 10 days, when it releases a pre-close trading update. So now is the time for a sneaky buy.

The stock finished unchanged yesterday, despite a flurry of early interest caused by the £33m purchase of 20 per cent of Gateway Storage Company, the group behind a 1.5 billion cubic metre salt cavern gas storage project in the Irish Sea.

Given Britain's dwindling North Sea reserves, and increasing concern about energy security, the investment is a smart move, providing the company with a foothold in a growing market. The scheme will add almost 30 per cent to UK storage capacity when it comes into play in 2016, and it may also prove a reliable income stream for Petrofac. In fact, the company has had a very reasonable year, helped by the market's perception of the stock as a safe haven when the fallout from BP's Gulf of Mexico disaster was buffeting oil stocks over the summer.

But it has not been entirely plain sailing. The share price took a very nasty knock at the end of last month, as a result of the reaction by dubious investors to the group's $100m (£63.7m) purchase of 15 per cent of Nigeria's Seven Energy, an upstream company in a new market for Petrofac. The City is also weary of waiting for an update on the second phase of Petrofac's South Yoloten gas project in Turkmenistan. Last June, the group was tipping the $4bn second phase as moving ahead "in the near future". The timetable has slipped, but it is still expected before the end of the year.

The recent falls of an otherwise solidly rising share price make Petrofac an increasingly attractive option, even on a heady rating of 19 times 2010 forecast earnings with a forecast yield of just 1.82 per cent. Getting in before the update on South Yoloten will be worth it. Buy.

Begbies Traynor

Our view: Hold

Share price: 63p (-4.75p)

If you needed hard evidence that Britain's economy has been improving over the past year, Begbies Traynor provided it yesterday. Forget the economists and their contradictory figures and forecasts: Begbies specialises in corporate insolvencies. It does well when everything else is going horribly wrong. Yesterday's trading update (read profits warning) showed revenues from the group's insolvency work are down 9 per cent.

Adjusted pre-tax profits for the six months to 31 October are also expected to be 16 per cent lower than a year ago at about £3.6m, not least because its financing costs are increasing. Other parts of the business helped to cushion the blow, but not enough.

No surprise, then, to see the shares falling but what about next year, when the VAT rise and cuts will start to bite? Begbies is hoping for better times.

Given what we have seen happening to companies that rely on the public sector, there might be something in that. At about nine times forecast full-year earnings, the shares are probably fair value. But with the economic outlook still uncertain, we would tuck a few shares away as insurance. Begbies' work could pick up in the new year, so hold.

Aegis

Our view: buy

Share price: 142p (+1.7p)

The acquisitive marketing company Aegis put out a solid interim statement in November, when it predicted there would be a modest improvement in profits for the full year. Conditions have improved since then, and analysts were suitably impressed as the group presented its growth prospects during an investors' day on Friday. They reacted by upping their recommendations and forecasts.

There is undoubtedly strong momentum behind Aegis, which did well in the third quarter. Its growth is expected to increase, particularly in 2011. Analysts have pointed to the strength of its digital assets, which make up a fifth of its earnings before interest and tax, and are expected to increase further this year. Another strength is Aegis's exposure to emerging markets, which the company forecasts will account for 34 per cent of revenues in its 2011 financial year. The price of 12.7 times 2011 earnings looks undemanding, although the dividend yield is just 2.1 per cent.

There is also possible takeover interest. Aegis has appeal to potential buyers, as it is one of the few remaining second-tier stocks in marketing services. As such, it is vulnerable to consolidation, which is always a feature of advertising cycles, so buy.