The Investment Column: Petrofac's gushing success looks set to run and run

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The Independent Online

Our view: Buy

Share price: 315p (+27.5p)

A near doubling of interim profits sent Petrofac shares surging like a Texan gusher yesterday and analysts scrabbling to lift forecasts for the full year.

Before tax, the Aberdeen-based oil and gas services company made profits of almost $74.5m (£39.7m) in the first six months of this year. That was 98 per cent more than during the same period in 2005, and comfortably eclipsed City expectations.

Petrofac is in the enviable position of taking part in the development of the oil industry without shelling out the enormous amounts of capital that prospecting demands.

Soaring oil prices have revitalised resource exploration and given refinery development a fresh lease of life. Petrofac benefits from both and took $1bn of orders in the first half of the year. By the end of June, there was a $3.3bn backlog. Customers include the government of Dubai, Kuwait Oil Company and Qatar Petroleum.

Earnings from its engineering and construction division, which helps build refineries, storage depots and pipelines, were about 10 per cent higher than expected yesterday. Revenues from its operations services arm, which runs rigs on behalf of smaller independent oil companies, rose 45 per cent to $325m.

Ayman Asfari, Petrofac's chief executive, predicted further growth - in the Middle East, the former Soviet Union, the US, North Africa and Asia - but possibly not at the same stellar rate.

In response to yesterday's results, the shares jumped 27.5p to 315p in easily the best performance by any constituent of the FTSE 250. They had already climbed an impressive 23 per cent this year.

After yesterday's strong gains, Petrofac's shares are trading at about 15 times expected 2007 earnings. They still look cheap compared to peers across Europe.

Investors chasing income would not look to Petrofac. But with the company well positioned to benefit from higher global capital spending by the oil industry, the share are still a buy.

Real Good Food

Our view: Buy

Share price: 71.5p (+0.5p)

The upmarket catering supplier The Real Good Food Company has grown faster than a glutton's waistline. Last year it swallowed the frozen fish firm Five Star Fish and Haydens Bakeries and, more recently, Napier Brown Foods which transformed the company.

A quarter of RGFC is now owned by Patrick Ridgwell, the sugar millionaire who engineered the £67.7m reverse takeover of Napier.

Half-year group sales jumped more than fivefold to £113.4m after the deal, and the bulk of revenues and profits now come from sugar. That leaves the company, already buffeted by volatile sugar markets, vulnerable to wide-ranging reforms to the EU sugar regime.

The European Commission wants to cut the amount of sugar made from European sugar beet and bring in more sugar from developing countries. RGFC believes it can benefit from the liberalised sugar regime in the long run.

The group supplies the likes of Waitrose, JD Wetherspoon and food manufacturers, and is best known for its Seriously Scrumptious brand.

Its management, led by the chairman Pieter Totte and chief executive John Gibson, who founded it three years ago, have vowed to focus on improving the business to reverse the recent fall in the share price, before returning to the acquisition trail. Trading at 6.6 times forward earnings, the stock is cheap and, with signs that the sugar market is beginning to stabilise, worth a look.

Wilmington

Our view: Hold

Share price: 188.5p (+2.5p)

The business-to-business publisher and training group, Wilmington, was all set this summer for an agreed 50/50 merger with Metal Bulletin. But at the last minute Euromoney snapped up the merger partner, leaving Wilmington jilted at the altar.

Full-year results published yesterday showed protracted merger negotiations did not harm Wilmington's business. And the break-fee will cover the £1.2m merger costs.

Revenues were up 12 per cent, while adjusted earnings per share grew 23 per cent - the third year of compound earnings growth in excess of 20 per cent.

The company's legal/regulatory business dominates its four divisions. Given lawyers' need for continuous career training, this is a good niche. It also publishes legal directories and other legal information.

The legal business provided 57 per cent of group revenues and 74 per cent of operating profit - it enjoys particularly high margins.

Wilmington seems a decent little media company, with defensive qualities. It has slimmed down the number of sectors in which it operates, but question marks remain over whether it should retain all its divisions - media in particular.

The company has £70m to make acquisitions, so it has strategic options, despite the Metal Bulletin disappointment. At 188.5p, the shares are fairly priced. Hold.

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