JP Morgan stays at 'neutral' on Petrofac despite cancellation of Dalma contract
Updated : 15:10
Analysts at JP Morgan stuck to their 'neutral' recommendation for shares of Petrofac, despite news that the Abu Dhabi National Oil Corporation had cancelled the $1.5bn Engineering, Procurement and Construction for the Dalma Gas Development Project.
That work had been awarded to Petrofac Emirates, the company's joint-venture with Sapura Energy, just over two months before.
"It is rare that multi-billion contracts are terminated, and given this is Abu Dhabi, traditionally one of the most competitively priced markets for EPC, highlights the extreme stress the industry is facing."
Such news wasn't good under any circumstances, but especially now given the recent drop in its backlog, they said.
"Overall, we are incrementally more cautious on PFC post the Dalma cancellation, but valuation is low and the [balance sheet] offers support, so we maintain our [neutral] rating," they added.
As well, they expected Petrofac to continue showing prudence when it came to preserving its cash, having recently lowered its dividend or through disposals.
Nevertheless, the analysts conceded that the loss of Dalma meant that their revenue estimates for 2021 and 2022 now had less cover.
JP Morgan cut its target price for Petrofac's shared by 27% to 300.0p.