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Market Sentiment Around Loss-Making Petrofac Limited (LON:PFC)

Petrofac Limited (LON:PFC) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. Petrofac Limited designs, builds, manages, and maintains infrastructure for the energy industries in the United Kingdom, Algeria, Thailand, Oman, Kuwait, Iraq, the United Arab Emirates, the Netherlands, and internationally. On 31 December 2022, the UK£353m market-cap company posted a loss of US$310m for its most recent financial year. Many investors are wondering about the rate at which Petrofac will turn a profit, with the big question being “when will the company breakeven?” Below we will provide a high-level summary of the industry analysts’ expectations for the company.

See our latest analysis for Petrofac

Consensus from 9 of the British Energy Services analysts is that Petrofac is on the verge of breakeven. They anticipate the company to incur a final loss in 2023, before generating positive profits of US$25m in 2024. So, the company is predicted to breakeven just over a year from today. What rate will the company have to grow year-on-year in order to breakeven on this date? Using a line of best fit, we calculated an average annual growth rate of 102%, which signals high confidence from analysts. Should the business grow at a slower rate, it will become profitable at a later date than expected.

earnings-per-share-growth
earnings-per-share-growth

We're not going to go through company-specific developments for Petrofac given that this is a high-level summary, but, take into account that generally energy companies, depending on the stage of operation and resource produced, have irregular periods of cash flow. So, a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

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Before we wrap up, there’s one issue worth mentioning. Petrofac currently has a debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, and the company has considerably exceeded this. Note that a higher debt obligation increases the risk in investing in the loss-making company.

Next Steps:

There are key fundamentals of Petrofac which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at Petrofac, take a look at Petrofac's company page on Simply Wall St. We've also compiled a list of relevant aspects you should look at:

  1. Valuation: What is Petrofac worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Petrofac is currently mispriced by the market.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Petrofac’s board and the CEO’s background.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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