Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.
What: Shares in Petrofac (LSE: PFC), the oil and gas services supplier, took a 17% hit in early trade this morning after delivering a profit warning. Net profit is expected to fall from $650m to somewhere between $580m and $600m. On the low end that’s a decline of 11%.
So What: Petrofac had previously forecast “flat to modest growth” in net profit in 2014, with a long-term growth trajectory that appeared upwards. The firm expected to deliver strong growth in 2015.
Lower than expected earnings from its Integrated Energy Services (IES) division — the division of the business which, in addition to providing infrastructure development, also takes on operational responsibilities for clients — was the predominant cause of the earnings shortfall.
Production from the Ticleni field in Romania is failing to meet expectations, while the first production on the Greater Stella Area development in the Central North Sea isn’t expected until mid-2015.
Now what: Ayman Asfari, the chief executive, commented:
“In IES, following a review of our existing and prospective projects, we are working hard to deliver improvements in operational performance on the existing portfolio and are re-focusing our IES business development plans.”
Prior to today analysts had predicted Petrofac would pay a 41p dividend in 2014. Following the earlier price movement, shares in Petrofac now yield a prospective 3.5%, while trading on a trailing P/E of 10.