3-Point Checklist: Should You Buy Petrofac Limited, Hunting plc Or John Wood Group PLC?

Over the last six months, shares in oil service provider Petrofac (LSE: PFC) have risen by 5%, while the share price of peers John Wood Group (LSE: WG) has edged up by 1%. At the same time, shares in Hunting (LSE: HTG) have fallen by 27%.

However, while Wood Group and Petrofac shares have crashed and recovered over the last six months — suggesting the worst may be over — Hunting has been downgraded in expectation of a year or two of poor earnings.

P/E tells a story

The latest forecast P/E ratios for these three firms show some interesting differences:


2014 historic P/E

2015 forecast P/E




Wood Group






The picture seems clear: all three firms are cheap on a historic basis, but only Wood Group and Petrofac look cheap going forward.

Hunting is more dependent on the US shale market than the other two firms, and Hunting’s earnings are expected to be hit badly by the slowdown in the US market and elsewhere.

Dividend differences

All three of these companies offer reasonably attractive yields, but two of the three are expected to cut their payouts this year, with only one — Wood Group — expected to deliver an increase:


Trailing yield

2015 prospective yield



4.1% -> cut

Wood Group


3.1% -> increase



3.3% -> cut

Petrofac is a clear winner here, in my view, despite Wood Group’s growth. But some caution is needed.

Strong finances?

It’s important to look at a company’s ability to deal with a sustained period of difficult trading — this can help you to avoid shares that will deliver big losses or dividend cuts.

The big risk during an industry downturn is that debt incurred during a boom period becomes problematic.


Net gearing

Interest cover

Free cash flow/dividend





Wood Group








None of these companies have obvious debt problems, but Hunting and Wood Group both appear to have stronger finances than Petrofac, where gearing is higher, interest cover much lower, and last year’s dividend was not covered by free cash flow.

Today’s best buy?

I’m not sure anyone quite knows how the oil industry downturn will affect the profitability of oil services companies. These companies are aggressively cutting their own costs, at the same time as their customers — companies like BP — are forcing them to cut prices.

Will the two sets of cuts balance out to protect the profit margins of companies like Petrofac and Wood Group?

It’s hard to be sure, but in my view, Wood Group is probably the best buy in today’s market, with Hunting and Petrofac joint second, as each has certain advantages and risks.

Look elsewhere

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Roland Head owns shares in Petrofac. The Motley Fool UK owns shares of Petrofac. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.