Oil services businesses are in focus this morning, after a positive trading statement from Petrofac and an uprade for John Wood Group.
Petrofac has climbed 26.75p to 357p as it said 2008 profits would be in line with expectations and said the bidding pipeline for next year looked promising. The slump in the oil price - despite Opec's announcement of more cuts yesterday - has had little effect. On Petrofac, Evolution Securities said:
"The statement is not as downbeat as Wood Group's [yesterday] - reflecting the lack of drilling/ North American exposure and also the relatively robust development market in Middle East and North Africa. Given the increase in production in Energy Developments in 2009 from the start up of the Don field, we do not expect to see the same decline in earnings likely in other oil service stocks. On this basis the rating of 5.2 times looks attractive."
Wood however was also on the way up after slipping back yesterday. Its shares added 14.9p to 213.75p as Morgan Stanley raised its recommendation from equal weight to overweight. The bank said:
"We think the risk-reward trade-off now looks attractive given relatively resilient earnings, a favourable operating and financial risk profile, and a share price that appears to be discounting a structural fall in profit margins to a level below the all-time low achieved in 1999. The outlook for the European oil service industry has deteriorated in recent months. However, long-term prospects look healthier given the challenges on the supply side of the oil industry. Against that backdrop, we believe it is worth building/maintaining positions in selected Oil Service companies."
