The Tide Is Turning For Petrofac Limited, Royal Dutch Shell plc And Weir Group plc

Oil stocks Petrofac Limited (LON: PFC), Royal Dutch Shell plc (LON: RDSB) and Weir Group plc (LON: WEIR) are now sailing in slightly less troubled waters, says Harvey Jones.

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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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Petrofac. The Motley Fool UK has recommended Royal Dutch Shell B and Weir. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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