The last month has provided much-needed relief for investors in oil-related stocks. These three companies have done particularly well, but can their improved fortunes continue?
Petrofac is back
In January, with the price of Brent crude plunging to $27 a barrel, I ran the numbers on oil services specialist Petrofac (LSE: PFC) and concluded: “With forecast earnings per share growth of 174% this year, Petrofac could be a relatively safe way to play the [oil price] fightback, especially at its current valuation of just 6.3 times earnings.” Since then, stock markets have stabilised, Brent has crept up to around $36 and Petrofac’s share price is up almost 25%.
Last week, Petrofac announced a healthy 10% leap in full-year revenues to $6.8bn and a $440m profit before losses on its troubled Laggan-Tormore operation (falling to just $9m afterwards). Markets had already discounted its Shetland setback, especially with Petrofac now focusing on its key Middle Eastern region instead. Group backlog also rose 10% to record year-end levels of $20.7bn, giving excellent revenue visibility for 2016 and beyond. January’s 6.1% yield has now fallen to 4.84%, thanks to the share price bounce, but Petrofac still looks like a buy to me.
More sure of Shell
Oil major Royal Dutch Shell (LSE: RDSB) is also on the comeback trail, although its one-month rise is a less spectacular 7%. That’s still impressive, given negative sentiment swamping the stock at the start of February, after a dismal set of results. Shell’s year-on-year drop in Q4 earnings from $4.4bn to $1.8bn shook even the most hardened oil investors, while full-year profits dropped 87% from $14.9bn to $1.9bn.
Markets have since taken a closer look at the stock, and decided that things aren’t so bad. It still managed to generate $5.66bn of free cash flow in 2015, after tax and interest payments. True, that’s down 59% from $13.9bn in 2014, but remains impressive in today’s troubled oil markets. Shell is still sticking by its dividend, which now yields 7.61%, and while it remains at risk it does offer the potential of a right royal income stream. All now depends on that pesky oil price.
Here Weir go
Glasgow-based engineer Weir Group (LSE: WEIR) enjoyed a sparkling February, its share price rising 13% after several years of misery. That’s particularly impressive given last week’s dismal set of full-year results, which saw revenues fall 21% to £1.9bn and profits down 46% to £220m. Weir sells high-pressure equipment for oil and gas, mineral and industrial applications, and when its customers hurt, it duly feels their pain.
There were signs of life amid the rubble, as cost-cutting reduced its debt by £36m to £825m despite lower profitability, and the dividend was maintained at 44p per share. Weir still faces a tough battle, especially if the embattled US shale sector finally surrenders this summer. Its minerals division remains vulnerable, as do oil and gas aftermarket revenues, and I fear that Weir is still swimming against the tide.
