Markets

Petrofac growth could be coming to an end

Analysts believe oil and gas services company has peaked.

Tamsin Carlisle

August 23, 2010

The oil and gas services company Petrofac caught investors' attention yesterday after saying its order backlog this year would surpass last year's record. The UK firm also projected a 20 per cent increase in net profit this year, posted strong first-half results and increased its interim dividend. That sent Petrofac's share price to a record 1,428 pence in London yesterday, after the company confirmed an earlier report that it had received its first contract in Iraq.

But analysts think Petrofac's stock may have peaked for the year. "It is difficult to see where the positive surprises will come from next," said Keith Morris of Evolution Securities, as the firm cut its recommendation to "neutral" from "add". The brokerage firm Panmure Gordon went further, slapping a "sell" rating on Petrofac's stock. "After the dramatic ramp-up in the order book over the last few years ? we believe that the company will now concentrate on execution rather than growth," it said yesterday.

Petrofac's management does not share that view. Yesterday, the company said it expected a larger Iraqi contract award later this year. "This is the early stages of a very exciting, large market in Iraq," said Keith Roberts, the chief financial officer at Petrofac. "We're confident we'll end the year with a higher backlog than we started." Petrofac has also won contracts in Kuwait and Romania this month.

Yesterday, it said it would move to the second and larger phase of a project in Turkmenistan to help develop the country's biggest gasfield. The Turkmen government awarded the US$2.4 billion South Yolotan contract in December to Petrofac Emirates, the joint venture between Petrofac and Mubadala Oil and Gas, which is owned by the Abu Dhabi Government. Failure to win a second Iraqi contract or a setback in Turkmenistan are big risks. Moreover, the company noted "weak" engineering services activity.

tcarlisle@thenational

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1. Lewis Hamilton, Mercedes 306
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A timeline of the Historical Dictionary of the Arabic Language
  • 2018: Formal work begins
  • November 2021: First 17 volumes launched 
  • November 2022: Additional 19 volumes released
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  • November 2024: All 127 volumes completed

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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The Federal National Council is one of five federal authorities established by the UAE constitution. It held its first session on December 2, 1972, a year to the day after Federation.
It has 40 members, eight of whom are women. The members represent the UAE population through each of the emirates. Abu Dhabi and Dubai have eight members each, Sharjah and Ras al Khaimah six, and Ajman, Fujairah and Umm Al Quwain have four.
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