Is Petrofac Limited a good value share?

Does Petrofac Limited (LON:PFC) (PFC.L) offer investment potential for the long term?

Petrofac Limited
Petrofac Limited

With a P/E ratio of around 8.5, Petrofac Limited (LON:PFC) (PFC.L) appears to be a relatively cheap share at the moment. It has made gains in recent months, but still seems to have a discount versus some of its energy-related peers.

In my view, the prospects for the oil and gas industry could be encouraging. Supply growth of oil may be somewhat restricted by the potential impact of sanctions on Iran, as well as geopolitical risks in countries such as Venezuela and Saudi Arabia.

Therefore, even though there is a chance that demand growth may come under pressure in the near term due to risks involving the growth prospects of the world economy, I remain relatively upbeat about the outlook for the energy sector.

Of course, volatility may remain high. Therefore, Petrofac’s stock price could be volatile in the near term. But if profitability and investment continue to rise in the wider oil and gas industry, it could lead to an improving financial outlook for the business.

That said, the company is forecast to post a fall in EPS in the next two financial years. This could keep investor sentiment pegged back to some degree. The business also faces regulatory risks according to my research, with the ongoing SFO investigation having the potential to cause investor sentiment to be relatively weak over future months.

Therefore, while I see the Petrofac share price as being cheap at the moment, I’m not sure that it offers good value for money. It has an uncertain financial outlook, and may prove to be volatile. As a result, it may fail to keep pace with some of its industry peers over the medium term. In my opinion, there may be better options available elsewhere for me at a time when I’m optimistic about the long-term prospects for the wider energy industry.

About Robert Stephens 5138 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page