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.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

More on Investing Articles

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Down 44% in 2 months! Is this FTSE 250 green energy pioneer priced too cheaply?

After a sharp tumble in recent months, this FTSE 250 company with a growing order book is almost 90% below…

Read more »

Investing Articles

Investing a £20k Stocks and Shares ISA in this high-yielder might give me a £2,000 annual income

Harvey Jones is now wondering whether to pour his entire Stocks and Shares ISA allowance into a single FTSE 100…

Read more »

Investing Articles

Saving £20k in an ISA? Here’s how I’m aiming to turn that into a stunning £2,035 monthly passive income

Harvey Jones is keen to build a high and rising passive income by investing in a balanced spread of top…

Read more »

Investing Articles

How I’ll aim to turn an empty ISA into a £100k nest egg buying cheap shares in 2025

Christopher Ruane explains how he thinks taking a long-term approach to buying cheap shares and holding them could help him…

Read more »

Investing Articles

I love my Legal & General shares even more after today’s exciting update

Harvey Jones had high hopes for Legal & General shares when he bought them last year. So far he's got…

Read more »

Jumbo jet preparing to take off on a runway at sunset
Investing Articles

Is easyJet’s share price set to soar after strong 2024 results and upbeat business projections?

After tough years for the airline sector, easyJet’s share price has bounced back and its prospects look good. But how…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Is BP’s 6.7% dividend yield good value after the recent share price fall?

Despite the fluctuating oil price and BP's volatile shares, City analysts predict strong ongoing annual dividend payments ahead.

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Up 42% from their 12-month low, is it time for me to buy this much-fancied FTSE growth stock after a 2% dip?

This FTSE 100 distribution firm achieved a lot in the past year and has good earnings growth prospects, but is…

Read more »