Today I am looking at the investment prospects of three FTSE headline makers.
Rampant oversupply stifles oil prospects
The former advised that it had hived off its Norwegian projects to Det Norske Oljeselskap for $120m in a bid to pay down its substantial debt pile — net debt registered at $2.3bn as of the close of October, Premier Oil advised last week. The share price has leapt more than 7% following today’s news, investors cheering the company’s moves to improve its balance sheet as well as reduce its high-cost North Sea operations.
Meanwhile, Petrofac — which provides engineering solutions to the oil and gas industry — advised today that it had secured a contract to provide engineering, procurement, and construction work at a sulphur recovery plant for Saudi Aramco. The stock rose around 5% as a result.
But the steady stream of poor data suggests that investors should not be ploughing into the firms just yet, in my opinion. Despite the Brent benchmark still hovering around multi-year troughs below $50 per barrel, US share operators are slowly getting back to work and latest Baker Hughes numbers on Friday showed the number of rigs in operation rise by 2 in the most recent week, to 574. This represented the first rise for three months.
And with economic data from commodities glutton China continuing to worsen, I believe ‘black gold’ prices have much more ground to concede. This backcloth has already played havoc with Premier Oil’s financial health, the firm having seen revenues plummet 35% in January-June to $577m.
With the supply/demand imbalance unlikely to improve any time soon, the London business also announced last week plans to push some project development and exploration spending into next year. Premier Oil has cut costs by 25% this year alone.
Such news also bashes the revenues outlook for hardware providers like Petrofac, naturally, and follows similar cost reduction initiatives from BP, Shell and the like. With the oil price looking likely to plunge still further, I believe yet more cash-saving measures are on the cards, making both producers and industry support specialists very high-risk stock selections.
Engineer robust returns
Shares in engineering specialists Keller Group (LSE: KLR) have also risen 4% in Monday business, bouncing from the year-long lows struck recently. The company advised that “there has been no significant change in market conditions” since its half-year report in October, adding that orders were up 15% on a like-for-like basis from the same point in 2014.
All is not quite rosy over at Keller, however, and the business continues to experience challenging market conditions in Canada and Australia. But with its core US construction market continuing to perform strongly, and conditions in Europe remaining stable, I believe the engineer remains an attractive earnings pick, particularly as an anticipated 13% earnings surge for 2016 leaves it dealing on a P/E ratio of just 8.3 times.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended 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.