Investment Column: Strike now and take profits in Petrofac

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The Independent Online

Petrofac

Our view: SELL

Share price: 1,475p (+9p)

Be careful what you wish for. Last year's steadily rising oil prices were thoroughly good news for oil and gas services group Petrofac, which floated in October 2005.

Annual results for the year to December, published yesterday, show profits surging by a tasty 58 per cent to $558m (£344m) on revenues up by 19 per cent to $4.4bn (£2.7bn). And with a year-end backlog up by nearly half at $11.7bn, Petrofac can well afford the 22 per cent full-year dividend rise, paying out 43.8 cents per share to no-doubt gleeful shareholders.

But one can have too much of a good thing. Economic doom-mongers are already dusting off their sandwich boards, as the political unrest ripping through the Middle East and North Africa sends oil prices spiralling ever higher. Petrofac – which generated as much as three-quarters of its 2010 revenues from countries such as Algeria, Oman and Saudi Arabia – was quick to distance itself yesterday from the immediate fallout from the crises.

The upheavals have "to date, had a minimal impact on our day-to-day operations", the company said. "Of the countries substantially affected, Tunisia is the only one in which Petrofac has current operations, and production at our Chergui facility has returned to normal after short periods of being shut in."

Such reassurances are welcome, and not without validity. Services groups such as Petrofac are increasingly vital to both international majors and national oil companies, regardless of the kind of government that is holding the reins. And as Keith Morris at Evolution Securities says, Petrofac has appealing long-term metrics, including an "undemanding" price-earnings ratio of 12 times, based on next year's estimates, excluding cash.

But at this stage, the climate is dangerously unpredictable. Even the much-delayed go-ahead for the second phase of the South Yoloten gas project in Turkmenistan finally signed off in December does not tip the balance. With the stock up by more than 20 per cent since our last "buy" recommendation back in June, now is the time to take profits.



Michael Page International

Our view: hold

Share price: 524.5p (-11p)

When Hays issued its half-year results last month, it made sure to play up the fact that more than 60 per cent of its net fees sprang from beyond these shores. That fellow recruiter Michael Page made a similar point when it published its full-year numbers last night was no surprise. After all, the UK job market is hardly inspiring.

So, Michael Page made it quite clear in its highlights that more than 70 per cent of gross profits were generated outside the UK. The chief executive, Steve Ingham, underscored the issue when he said that the group continued to book its "highest rates of growth in [its] Asian and Latin American regions", where Michael Page commands leading market positions.

That is only part of the story. While the emerging markets are booming and the more mature regions are recovering, Michael Page also boasts a strong balance sheet with £80.5m in net cash. The dividend was also raised, the first time the payout has grown since 2007.

The only issue is that, at more than 24 times forward earnings, the shares already appear to be factoring in much of the good news. The results mean that this is not a sell. But the valuation means that we would not buy just yet. This is a solid hold.

Fenner

Our view: hold

Share price: 352p (+11p)

It may have been brief, but there was plenty to feel cheerful about in yesterday's trading statement from Fenner. The key point was that, despite traditionally finding the second quarter challenging, the engineering group said it had managed to maintain the "sharp increase in profitability" it saw in the first three months of the year.

This was due, Fenner said, to its key units seeing improvement in both volumes and margins. At the same time, trading conditions remain strong and its investment programme is producing results.

All good, then, but considering that the share price has risen by around 80 per cent since August, it might not be the best time to buy. That said, if you do have Fenner's shares in your portfolio, they definitely seem worth holding on to. Otherwise, wait until April's interim results to get a more detailed handle on the outlook. Hold.

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