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Why the Petrofac share price plunged 33% today

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The Petrofac (LSE: PFC) share price crashed in early deals this morning. At the time of writing, the stock was down around 33% on the day.

Investors seem to be deserting the business due to its current problems with the Serious Fraud Office (SFO). The government agency opened an investigation against the company several years ago following bribery allegations. Today, the agency has announced an employee of a Petrofac subsidiary has admitted additional charges under the UK Bribery Act 2010.

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Investors sell the Petrofac share price

According to the organisation’s press release, these charges relate to three historic contract awards in the UAE in 2013 and 2014.

Owners of the Petrofac share price will be pleased that no other charges have been brought against the company, so far. The statement does mention that a small number of employees are suspected of having acted with the individual. The SFO investigation is ongoing. 

I think this is a worrying sign for the company. Even though the employee who has been charged is no longer with the business, it shows Petrofac has some skeletons in the closet. It seems unlikely one individual would have acted alone. Even though no other charges have emerged, there could be more to come.

As such, I reckon this is just the start of what could be a challenging period for the business. This could signal further uncertainty ahead for the enterprise. And with that being the case, I’m concerned about the company’s future. 

Challenging period

As a previous Petrofac share price owner, I’ve kept a close eye on the business over the past few years. Before the SFO investigation, the company was regarded as one of the better oil and gas engineering groups. Indeed, it’s continued to win contracts despite the additional scrutiny it’s attracted. 

The cloud hanging over the business has also held back growth. 2021 sales are expected to be less than half the level they were in 2016. Profits have also declined substantially.

Therefore, Petrofac is a much smaller business than it was five years ago. I think the current share price reflects this, and additional scrutiny from the SFO won’t turn things around. In fact, I reckon sales and profits could decline even further from current levels. The firm’s troubles may continue to put off clients. 

So all in all, while an investor might be tempted to buy the Petrofac share price after its recent decline, I think it may be best to avoid the business for the time being. Sales are falling, and so is profitability.

In my opinion, without any resolution to the investigation, this trend will continue for the foreseeable future, which implies the stock will continue to decline. Unless the company is able to instigate a dramatic turnaround, shareholders may continue to suffer. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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