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Petrofac - CEO stepping down

Sami Iskander will be stepping down as Group CEO in March 2023.

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Sami Iskander will be stepping down as Group CEO in March 2023. He has held the role for the last two years.

He will be succeeded by Tareq Kawash who joins from McDermott, a provider of engineering and construction solutions to the energy industry.

At McDermott Mr Kawash was ''most recently Senior Vice President of its Onshore and Offshore Business Lines, and a member of McDermott's Executive Committee.''

The shares fell 2.5% following the announcement.

View the latest Petrofac share price and how to deal

Our view

Tareq Kawash's CV gives us some confidence that he is well placed to drive Petrofac's recovery, as it continues its focus on winning new contracts and rebuilding the order book.

First half results showed there's still plenty of work to do, with revenues down and underlying operating profit only just making it into the black. The strong pipeline built under Sami Iskander's tenure has set the scene for an improved performance in the second half. What's more, the oil field services industry looks to be undergoing a recovery.

But oil prices have come down from their recent highs, and the outlook remains murky in the face of a challenging global economy. That's something the new boss is going to have to face head on. Until clarity emerges over his strategic focus, investor sentiment could continue to weaken.

The core engineering business has continued to struggle against elevated covid-related costs, which holds margins back. Plus, the division's first half order intake was significantly below revenues, which were already down sharply. It looks as though the absolute worst is over, and it's this division that dominated the 18 month pipeline. We're encouraged by the group's approach to the energy transition, with $7bn of the pipeline relating to New Energy Services.

There's $57bn up for award over the next 18 months, an increase of $4bn since the June trading update. So far growth in new orders has been somewhat disappointing, with the backlog still lower than at the end of 2021. But with new contracts weighted toward the second half, we should get a better picture of how demand is shaping up now that Saudi Arabia and the UAE are back on the table at the full year.

For now, we have no reason to believe the medium term goals set out in the annual report have changed. These include a revenue target of $4-5bn in the medium term with operating profits margin ambitions of 6-8%. Should even the bottom range of these targets be achieved that would drive operating profits of $240m, a multiple of 2021 levels. There is significant execution risk to reaching these targets.

The all-important number at Petrofac continues to be the order book. The company's future depends on the fortunes of the wider oil sector, over which it has no control, but has been booming lately. With a price/earnings ratio some way above the long-term average, the market's expecting a sharp recovery. It looks like the group's firmly on that path, albeit at a slower pace than initially expected. Given the current volatility, sooner would have been better and with so much uncertainty ahead, caution is warranted.

Petrofac key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 22nd November 2022