Here’s why I think Petrofac shares could be worth buying in 2021

As the oil industry is expected to partly recover in 2021, I think Petrofac shares could be worth buying right now at current low levels.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

2020 has been a terrible year for oil and gas companies worldwide. Petrofac (LSE: PFC) was one of the companies that suffered badly from the Covid-19 pandemic and the ‘oil crisis’ between March and May. Since the beginning of the year, Petrofac shares have lost more than 60% of their value, making them among the worst FTSE 250 performers this year.

However, as the rollout of Covid-19 vaccines in the UK and around the world has brightened the economic outlook, I reckon oil and gas related-companies could be on the rise next year. Yes, Petrofac faces mounting pressure on new orders due to the ongoing pandemic. But the oil and gas facilities services provider has a long history and a robust portfolio of infrastructure energy projects. As such, I think Petrofac shares could be worth buying at current levels. 

The oil industry

It’s no wonder that Petrofac’s share price plummeted earlier this year. Oil and gas giants like Royal Dutch Shell and BP have faced major challenges amid the pandemic. According to the World Bank, energy consumption remains well below pre-pandemic levels. And demand for energy products will only fully recover in 2023. 

Should you invest £1,000 in Banco Santander right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Banco Santander made the list?

See the 6 stocks

Much like other oil companies, Petrofac was severely affected by the lockdowns around the world. The lockdowns forced it to shut down most of its operations. As a result, it recently warned that profitability will be “materially lower” when it reports its full-year results in February. And it expects final revenues of £4bn for 2020 compared to £5.5bn in 2019.

But Petrofac is not an oil producer. Instead, it builds, designs, and maintains energy infrastructure in several locations across the globe. For a large portion of its revenues, it relies on oil companies. In my view, this is a reason for optimism as the demand for global oil is expected to recover by 5.7 million barrels per day in 2021 (just 3 million barrels below pre-covid levels).

Petrofac share price: what’s ahead in 2021?

Since the pandemic crisis started, Petrofac has taken major steps to reduce costs and expand its future operations. After cutting costs by $125m in May, it announced in December that it plans to cut a further $250m in 2021. As such, it laid off nearly 20% of its staff, reduced salaries, and cancelled its dividend payout.

At the same time, Petrofac has won a series of contracts to ensure operational performance is maximised next year. This includes a $1.65bn contract for an Abu Dhabi megaproject and a two-year contract from NEO Energy. Then there’s a contract for a green hydrogen project, and the largest crude distillation unit operation in Kuwait. Additionally, it has a pipeline of around $46bn of potential contracts for 2021.

All things considered, I think Petrofac’s share price has a positive outlook for the next year. From its current price, I see plenty of reasons why it could at some point be trading again at pre-Covid-19 levels. This would mean an increase of nearly 300%. And if the oil industry recovers next year, it’s very likely that Petrofac shares will attract more attention once the company resumes paying dividends. 

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Tom Chen has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

5 passive income techniques of stock market millionaires

Christopher Ruane details a handful of approaches many successful stock market investors use to grow their passive income streams.

Read more »

Aston Martin DBX - rear pic of trunk
Investing Articles

Down 42% in a year, here’s why Aston Martin shares could keep falling

Aston Martin shares have destroyed vast amounts of shareholder value since the company listed in 2018. Are they now a…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE shares: a once in a blue moon chance to get rich?

Christopher Ruane explains why he thinks hunting for blue-chip FTSE bargains in the current market could help an investor build…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

4 stocks Fools have bought for growth and dividends

Sometimes, an investor doesn’t have to make the choice between buying a growth stock or dividend shares! Some investments offer…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Is there no limit to how high Rolls-Royce shares might go?

Christopher Ruane sees some reasons Rolls-Royce shares could continue pushing upwards. But is he persuaded enough about the potential value…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

How much could £20k in a Stocks and Shares ISA be worth in 2030?

UK investors have enjoyed spectacular returns in their Stocks and Shares ISA's over the past five years. Would could the…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

Is the FTSE 100 good for passive income?

Our writer considers whether investing in the UK’s largest listed companies could help generate generous levels of passive income.

Read more »

piggy bank, searching with binoculars
Investing Articles

Here’s the growth forecasts for International Consolidated Airlines (IAG) shares through to 2028!

Shares of International Consolidated Airlines (LSE: IAG) have risen following a strong set of first-quarter financials last week. Is the…

Read more »