Investment Column: Buoyant Petrofac set to drill its way back into the North Sea oilfields
Britvic; African Barrick Gold
Friday 21 October 2011
Our view: Buy
Share price: 668p (+13p)
Petrofac yesterday unveiled plans to move back into the North Sea as an owner of assets, as well as a provider of services. Alongside an upbeat trading statement, the group said it will acquire a 20 percent stake in three oil fields by selling an 80 percent stake in a floating production facility to oil explorer Ithaca Energy, the operator of the licences, to help it develop them. The group's previous North Sea assets were spun off in 2010 into a separate company, Enquest.
The Ithaca deal is not a bad move, when you take account of the fact that much of the world's energy resources are to be found in places which aren't always very stable.
Not that this is stopping Petrofac, which was talking up its prospects of bidding for new work around the world as it reiterated guidance that this year's profits will be at least 15 per cent higher than last year.
The group's order backlog at 30 September stood at $10.8bn (£6.9bn), down $600m from 30 June. However, since the end of the quarter that has been augmented by $1.2bn, as a result of the recent signing of production enhancement contracts with Pemex in Mexico.
Whatever one might feel about it, the world is thirsty for energy. Petrofac might not be the most recognisable of names in the FTSE 100, but it has proved to be very successful.
We said sell in March, the right call given the performance of the shares since.
However, now we are prepared to dip back in. In the current climate, energy looks to be a defensive sector. Given its current tight supply, we think oil will head higher over the coming months.
On a valuation of just 11.9 times next year's forecast full year earnings, Petrofac is by no means expensive. Buy.
Our view: Buy
Share price: 328P (+19.7P)
Has Britvic lost its fizz? The company's trading statement yesterday suggested a slowdown in its fourth quarter: revenues rose by only 0.3 per cent compared to strong growth in the third, held back by falling sales in Ireland and France.
But while the problems of the former are hardly surprising given its economic troubles, the French business (acquired last year) did face particularly tough comparatives. Britvic's fourth quarter is made up of July, August, and September.
Last year in France those months were hot, this year they were not. So a fall in sales of 1.5 per cent is not a bad result. What's more, the British and international franchise operations did well.
For the year to 2 October, overall group revenues grew 0.8 per cent, and by 14.6 per cent to £1.3bn including that French business, acquired in the third quarter of last year. The group also pushed through some price increases: the GB and International average realised price was 2.1 per cent higher.
The shares have fallen since we last updated our view in December. So much so, that the valuation is starting to look very compelling. The stock trades on a multiple of just 8 times full year forecast earnings, with a cracking prospective yield of 6 per cent. To put this in perspective, Panmure has highlighted that the valuation represents a discount to the group's international peer group of about 45 per cent. That's undeserved. Soft drinks are clearly not entirely immune from economic woes. But these shares are undervalued. Buy.
African Barrick Gold
Our view: Hold
Share price: 529p (-35p)
Shares in Tanzania-focused miner African Barrick Gold shuddered a little yesterday after it became clear that the African country's government wants the company to agree to raise the royalty it pays from 3 per cent to 4 per cent to fall in line with new legislation.
Such a move would have to be voluntary – existing agreements in theory protect current mines. But new ventures would face the new rate, and as a long term operator in the region, ABG may ultimately have to cough up.
All miners are dealing with the fact that Governments are increasingly of the view that they should take a bigger slice of the revenues from the natural resources to be found in their territories. It's hard to argue against this. But it all rather took the gloss off a good set of third quarter results at ABG.
Revenue grew 61 per cent, to $354m (£225m), driven by an 11 per cent increase in gold production (182,401 ounces, ahead of expectations) and a 44 per cent increase in average realised gold price – $1,774 per ounce.
Net profit surged by 156 per cent to $102m, even though costs increased (12 per cent to $687 per ounce). The group also sits on a chunky cash pile: $525m. That can fund deals.
Although costs are rising, the group is likely to continue reaping high prices for its product (not least because of economic turbulence).
ABG is one of the our tips of the year, but has eased a bit since we highlighted it at 611p. We're still of the view that it can progress, though. Hold on.
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