The last month has provided much-needed relief for investors in oil-related stocks. These three companies have done particularly well, but can their improvedfortunes continue?
Petrofac is back
In January, with the price of Brent crude plunging to $27 a barrel, I ran the numbers on oil services specialist Petrofac (LSE: PFC) and concluded: Withforecast earnings per share growth of 174% this year, Petrofaccould be a relatively safe way to play the [oil price] fightback, especially at its current valuation of just 6.3 times earnings. Since then, stock markets have stabilised,Brenthas crept up to around $36 and Petrofacs share price is up almost 25%.
Last week, Petrofac announced a healthy 10% leap in full-year revenues to $6.8bn and a $440mprofit before losses on its troubled Laggan-Tormore operation (falling to just $9m afterwards). Markets had already discounted its Shetland setback, especially withPetrofac now focusing on its key Middle Eastern regioninstead. Group backlog also rose10% to record year-end levels of $20.7bn, giving excellent revenue visibility for 2016 and beyond.Januarys 6.1% yield hasnow fallen to 4.84%, thanks to the share price bounce, but Petrofac still looks likea buy to me.
More sure of Shell
Oil major Royal Dutch Shell (LSE: RDSB) is also on the comeback trail, although its one-month rise is a less spectacular 7%. Thats still impressive, given negative sentiment swapping the stock at the start of February, after a dismal set of results. Shells year-on-year drop in Q4earnings from $4.4bn to $1.8bn shook even the most hardened oil investors, while full-year profits dropped87% from $14.9bn to $1.9bn.
Markets have since taken a closer look at the stock, and decided that things arent sobad. It still managed to generate $5.66bn of free cash flow in 2015, after tax and interest payments. True, thats down 59% from $13.9bn in 2014, but remainsimpressive in todays troubled oil markets. Shell is still sticking by its dividend, which nowyields 7.61%, and while it remains at risk it does offer the potential of a right royal income stream. All now depends on that pesky oil price.
Here Weir go
Glasgow-based engineer Weir Group (LSE: WEIR) enjoyed a sparkling February, itsshare price rising 13% afterseveral years of misery. Thats particularlyimpressive given last weeks dismal set of full-year results, which saw revenues fall21% to 1.9bn and profits down 46% to 220m. Weir sells high-pressure equipment for oil and gas, mineral and industrial applications, and when its customers hurt, it duly feels their pain.
There weresigns of life amid the rubble, as cost-cutting reduced its debt by 36m to825m despite lower profitability, and the dividend was maintained at 44p per share. Weir still faces atoughbattle, especially if the embattled US shale sector finally surrendersthis summer. Its minerals division remains vulnerable, as dooil and gas aftermarket revenues, and I fear that Weir is still swimming against the tide.
Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Petrofac. The Motley Fool UK has recommended Royal Dutch Shell B and Weir. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.