Profit-takers seizing their chance after Petrofac surge as brokers become fans

Mickey Clark
14 Aug 2009

Petrofac shareholders can reflect on this week with a certain amount of satisfaction and look to the future with pound signs registering in their eyes. The shares have traded at record highs this week and with that in mind it was time for them to take some profits today.

The shares retreated 34p in a thin market to 877½p, giving institutional investors and tracker funds the opportunity to top up their holdings.

Only yesterday it was announced that the oil industry services group was to be included in the influential MSCI Global Growth Index. That forced the trackers to rush and top up their weightings.

Now two brokers have joined Petrofac's fan club. Bank of America Merrill Lynch has hiked its target price for the shares from 770p to 885p, while rival RBS has repeated its buy rating and jacked up its target by 200p to 930p.

Last week, UBS raised its rating from neutral to buy and target from 610p to 1000p. It also began upping its earnings forecasts from next year onwards on the back of new contract bids.

RBS has also raised the target for John Wood Group, one of Petrofac's biggest rivals, from 200p to 280p and repeated its hold rating. The shares responded with a rise of 3.8p to 292.1p. Merrill Lynch has raised its sights on Wood group from 295p to 320p.

The rest of the market looked set to round off the week on a firm note with share prices hitting a 10-month high as investors continued to be buoyed by the first tentative signs that the global recession is coming to an end.

Brokers like Paul Kavanagh, a partner at Killik, said: “Disappointing figures will continue to be brushed aside and we could certainly be looking towards the 5000 level.”

But investors were not cheering on Wall Street this afternoon, where share prices were in retreat following the latest consumer confidence data, showing another fall at the start of this month as consumers worried about their finances.

The Dow Jones fell 135.5 to 9262.6. The FTSE 100 index responded by slamming into reverse and was left nursing a loss of 55.9 at 4699.5, having briefly touched an intraday high of 4790. Miners were first out of the traps in London, supported by another strong rise in the price of commodities such as copper overnight. Goldman Sachs has raised its rating on the sector from neutral to attractive.

Anglo American put on 25½p at 1946½p, and Kazakhmys 3½p at 904p. But Rio Tinto fell 55½p to 2355p after touching 2502p. Goldman has added Kazakhmys to its conviction buy list. It says the company is the most leveraged to rising copper prices as global demand for the metal picks up.

Oil shares also gave chase on the back of prospects for the oil price once the global economy starts to recover. Cairn Energy jumped 38p to 2486p, takeover favourite Dana Petroleum, 16p to 1428p and Tullow Oil 33p to 1079p.

The banks traded mixed after a firm start. Lloyds Banking Group rose 1.02p to 99.4p, while Barclays shaded 0.7p to 358.2p and Royal Bank of Scotland eased 0.2p at 46.1p. HSBC shed 19.1p at 649.8p, reflecting sell-offs this morning in Hong Kong and Shanghai.

The intense bid speculation in British Land, up 24.4p at 516.5p, spilled over into the rest of the property sector. There were gains for Land Securities, 7½p to 634½p, Hammerson, 4.4p to 401.7p, and Liberty International, 3.2p to 483p. Sterling Energy firmed 0.43p to 3.15p after announcing plans to raise £62.5 million by way of a placing of 4.8 billion new shares at a heavily discounted 1.3p. The group also plans to raise £20.6 million in November by way of an open offer.

Within hours of Goldman Sachs downgrading Enterprise Inns, unmoved on 157p, to a sell and adding rival Mitchells & Butlers, 2.9p better at 278.8p, to its influential conviction sell list, comes news that Altium Securities has begun pushing shares in Punch Taverns, 1.5p better at 112.7p.

The broker has it as a high-risk buy with a target price of 150p. That compares with the current price of 111.9p. Altium is not given to understatement. Punch, along with the other pub chain operators, has also been hit by the triple-whammy of the smoking ban, falling beer sales and cheap booze competition from the supermarkets.

Its shares have slumped from a peak of 1362p since May 2007. The company has subsequently seen its stock-market value shrink to £706 million, while it has debts of almost £4 billion. Altium sees the share price responding in future to news of disposals.