Petrofac Share Discussion Threads

[ryad123] 13/4/2024 19:23

@jaknife can you explain how do you get the 4p figure from, you seem to be assuming that after the bond holders taking a haircut along with a fresh equity cash injection, the valuation will remain the same, as if the business will be worth the same even though it has less debt, dilution means the percentage of ownership shrinks not necessarily loss in absolute money terms, unless you are saying that 26p a share is misguided and the market is still mispricing pfc. Would you agree that the price action in the last week is weird, who was scooping up the shares that were being dumped? Also how do you explain the contracts being awarded in the last few months, were all these companies mistaken about the financial health of pfc? Last but not least metro share price didn't move much from around 35 p, the share dropped from 100p but that was before D4E was made public knowledge. Any thoughts on that Mr Jaknife?

[bouleversee] 13/4/2024 19:17

P.S. Why are they making large losses on all their contracts, if that is the case? Not much point in winning contracts if you have under-quoted for them.

[bouleversee] 13/4/2024 19:15

If things are so dire, why do you suppose the company bought a chunk of shares a week or so ago to give to senior executives? I'm an elderly investor, never a trader, and have to admit that I haven't a clue how things are going to turn out. However, I don't think it's inevitable that there will be a D4E. I wouldn't be surprised if there were a rights issue of some sort and the bosses don't want the share price to rise too high as they will need a lot of dosh to buy their entitlements. Nor would I be surprised to learn that at least some of the large purchases today when the price was low after the RNS were somehow on behalf of the bosses through associates One lesson I have learn from this stressful exercise is that one should take a reasonable amount of one's profits while the going is good and not hang on thinking that the good days will go on forever.

I'd like to think that the bosses have the interests of the ordinary shareholders at heart but I've lost so much money, I can't afford to gamble on that one.

[dealy] 13/4/2024 18:41

If the company was only ever capable of being worth 720m EV then why would they bother running the company, and why would it have been able to issue 600m worth of bonds as well.as gaining access to 200m of credit facilities?The business is capable of doing much more revenue than 3 billion and of reaching Ebit margins well above 3% (I gave 3% as rhe break even level not the goal).You are looking at this company with a pure accountancy hat on and not a marketing perspective. You are assuming everything is static. This is not how growth and operational efficiency work. Its about strategic position

[action] 13/4/2024 18:14

Do not trust management as this is going to be shorters paradise. Do not want shares to go 85p . May be there is an agenda for them to keep it low. What a crooked market UK is. Shareholders are always on loosing Team. Disgusting.

[whites123] 13/4/2024 17:56

Short of it is this.

Last week PFC ended up "UP 8%" on the week.
This was despite the RNS which was designed to halt the rise.

Armbar has this nailed on with his suppositions.

PFC = STRONG BUY

[jaknife] 13/4/2024 17:54

dealy,

"JK, whilst you are adept at listing the various valuation models, I believe you are too negative regarding the outlook for future profits. I can not believe that the company would willingly run a business with a guaranteed negative net income going forward (even if that has occurred over the last 7 years).

Gross margin estimate is too low at 5% and anyway, it is after project staff costs (the raw material for the delivery which are effectively direct costs). SG&A is really just management, admin, office rental, travel etc. What the company definitely has is an interest bill (tax should be zero given previous losses) of c. 80m usd per year. An Ebit margin of 3% would put them break even. That should achievable given strong dema"

You've only done half the work. let me finish off your numbers ...

Notwithstanding your wild assumptions, taking them at face value and so no adjustment for tax:

$3,000m revenue * 3% x market multiple of 8 = $720m

So on some outrageously optimistic assumptions we've still got a business value that is less than the debt!?!?!

Can you really not see the problem?

JakNife

[action] 13/4/2024 17:25

Price goes down NO RNS from company.Price goes Up RNS FROM COMPANY straight away to Bring it down.Shorters paradise..

[investtofly] 13/4/2024 16:40

What sort of figures are we looking at for a Hostile T/O?

[dealy] 13/4/2024 16:08

JK, whilst you are adept at listing the various valuation models, I believe you are too negative regarding the outlook for future profits. I can not believe that the company would willingly run a business with a guaranteed negative net income going forward (even if that has occurred over the last 7 years). Gross margin estimate is too low at 5% and anyway, it is after project staff costs (the raw material for the delivery which are effectively direct costs). SG&A is really just management, admin, office rental, travel etc. What the company definitely has is an interest bill (tax should be zero given previous losses) of c. 80m usd per year. An Ebit margin of 3% would put them break even. That should achievable given strong dema

[jaknife] 13/4/2024 15:39

dealy,

"right now, the full market-rated EV is 250m usd for the bonds, 150m usd for the equity, and maybe 200m for the bank debt (not discounted), so that makes something like 600m usd. The enterprise is definitely worth more that so the bonds are certainly undervalued imo"


What fundamental analysis have you used to determine that "the enterprise is definitely worth more than 600m usd"? And is $600m the right target? The value of the business needs to be greater than c. $800m before there's any residual value for shareholders!

There are a number of different models that you might use:

Net Asset Value?

The last accounts revealed a technically insolvent balance sheet with liabilities exceeding assets by $66m:



That was at 30 June 2023 and we know that there have been losses since then, as revealed in the 20 Dec trading update:



On the face of it I would expect the full-year balance sheet to tell you that the equity is worth minus $200m. That would imply a business value in the ballpark of $600m, which agrees with the enterprise value that you've calculated above!

Hence a net asset value model says that the equity is worthless.


PE Model?

A traditional PE model takes a market multiple and applies it to the historic or forward EPS to calculate a value for the business. The problem for Petrofac though is that EPS has been negative for the last five years and the average EPS over the last seven years is also negative. Also, looking forward, the EPS is negative for 2024.

So a PE model also says that the equity is worthless.


Dividend Yield Model?

There hasn't been one for ages and won't be one for a long time. Let's be generous and say "not applicable" rather than "the equity is worthless".


EBITDA Multiple model?

The historic numbers are negative so this model also implies equity is worth less than zero.


The finger in the air model.

We might as well have a bash at trying to calculate some sort of forecast. This assumes that PFC has a really good year, with a fair wind behind them:

Revenue of $3,000m
Gross margin of 5%
SG&A of $225m (the average of the last six years)
Tax of 25%

I thought that these would be reasonable and produce a positive number but revenue of $3,000m on a 5% gross margin makes for a gross profit of $150m, which is less than my forecast for SG&A.


Conclusion.

I can't find ANY basis upon which Petrofac's equity is worth more than zero. Would you like to share your finger in the air analysis on how you arrived at your conclusion above.

Apart from that, it is nice that finally we can all start talking about debt for equity swaps. For months now merely mentioning "D4E" drove some into apoplectic fits but now we are all on the same page and we simply have to agree "4p", which would be a £20m market cap and the traditional historic norm for a D4E swap on the main market.

JakNife

[armbar] 13/4/2024 12:06

This is being played a beauty and has been on the cards for some time.When tareq arrived and he kitchen sinked I thought ok , then he done it again after the TenneT first contract.It was at that point I asked directly to substantiate why , very unusual , as there was no reason to again cause another share price drop and kitchen sink it twice.No responseThis has been played for a while, what they could not allow is the share price to run away into 3 figures, from 80 when the other contracts landed , reason why because they want Petrofac , want it cheap , who , the Middle East where in reality it is its homeWant the TenneT contract $8bn , the $60 pipleine , the associated discounted cash flow, just imagine cash flow on 10-20bn , the strategic importance to Uae, Europe , ME, renewables global sector, they want to be the leader So that is why PFC will be taken cheap any methods to acquire , dirty tactics imoBuild it up to 9000 employees secure contracts like TenneT, feed studies Take it by hook or by crookQuestion is how , how much it wont be pretty ME all day

[tahmina1] 13/4/2024 11:47

dealy - bonds are $600m though for a potential buyer (unless a deal was done) but I agree there are intangible that make this worth far more. Its of significant strategic importance.

[tahmina1] 13/4/2024 11:47

dealy - bonds are $600m though for a potential buyer (unless a deal was done) but I agree there are intangible that make this worth far more. Its of significant strategic importance.

[halfpenny] 13/4/2024 10:42

Massive Falls so What does next week do!!

Looks like weeks or months away from any update Capital Raise and Asset sales.

How Low How Soon ....may test 20p then 14p lows!!

[dealy] 13/4/2024 10:15

right now, the full market-rated EV is 250m usd for the bonds, 150m usd for the equity, and maybe 200m for the bank debt (not discounted), so that makes something like 600m usd. The enterprise is definitely worth more that so the bonds are certainly undervalued imo

[wshak] 13/4/2024 09:52

Hi Paul,How can there be any upside in shares if bonds are sub 30p in the pound?In the event of a successful d4e where the shares go up afterwards to reflect a stronger balance sheet, then bondholders are made whole, in effect.Even if they agree a permanent haircut in exchange for fresh money coming in, why the hell would they agree to that whilst attributing £150m in value to existing shareholders?You made the point about Metro Bank shareholder insisting that some value was left for shareholders before subordinated debt holders got a haircut, but even then the value was sub £50m.Here, we have senior secured debt, not subordinated. Senior debt was left untouched at Metro Bank.

[armbar] 13/4/2024 09:43

Well lets see If your D4E at 4p comes true , Imo I very much doubt it but that is my opinion if you are right at 4p I will be the first to say I was wrong and you were correct However D4E 15-20P imo IF it happens , what i stated weeks ago , But JV or TO imo favourite Now whether an acquirer offers pre or post restructure is unknown both have advantages This is heading to Middle East, how , what value , who knows, it wont be pretty GL

[dealy] 13/4/2024 09:18

6 months has passed since the market became aware of liquidity problems. Of the many possible solutions tabled in December, none has actually been implemented or even agreed. The key question now is: at what point do operations / sales start to get affected by the uncertainty?

[loglorry1] 13/4/2024 09:14

Armbar you are in denial. The RNS tells you there will be a D4E. You can't rely on the "all options are on the table" statement because it means nothing. Obviously the company would accept a take over offer but that's tautology.

They've said they are working on a D4E that's the route that will happen.

Good luck though.

[loglorry1] 13/4/2024 09:03

"So why is anyone buying? It's a lousy risk reward"

IMHO shorts covering. The cost of borrow is very high c85%. There's also a risk of recall. If shares spike to 35p and you are recalled on top of paying 85% for a few months you loose money being short.

The price won't crash to 4p until new shares hit the tape. Could be 6 months maybe 12 months with lock ins. Paying borrow all that time with risk of recall is expensive.

In my mind there is very little chance of longs avoiding sub 5p in a recap but equally that doesn't necessarily mean shorts will clean up in a few weeks time.

I do think shares will go much lower though maybe sub 15p when the terms of the D4E are announced.

There's also small chance of rights issue where shorts become short rights. While it won't matter much in the end it's a pain for shorts to deal with.

So we have shorts probably covering a bit and some bulls in denial buying and some bulls throwing in the towel balancing out the price around 25p,

There's an outside chance of admin if nobody wants to put fresh money in which would be great for shorts but again delays and borrow charges while it's worked out.

What bears always forget is it's totally rational to buy shares at 20p if you think you can sell them later in the day at 25p. The fact they are going to be 4p in a few weeks is irrelevant. That always causes over sold bounces and squeezes in these situations.

That's my 2p worth.

[armbar] 13/4/2024 08:58

It also continues to be in discussion with prospective investors and certain major shareholders in relation to potential further investment in the CompanyAnother option as I have said before is an MBO with ME backers or Apollo they already own 30% plus and could easily acquire the rest at low prices Then IPO the new company for multiples on the ADX in two years or RTO into Asfari new co vendetta the wind services company

[armbar] 13/4/2024 08:49

Agreed been saying it for a whileSomeone wants PFC and wants it cheap , Middle East for all the reasons I have stated for several months, PFC has huge value , wind eg TenneT solution ,TenneT alone is $8bn 6 systems the feed study suggests europe need 20 Masdar the renewable arm Adnoc are JV eg RWE 11bn Seagreen perfect fit See the sustainability plans for ME Hydrogen and carbon capture first of kind at Habshan Adnoc with PFCAmmonia and OCi This has been played a beauty imo , leak, fud , shorts done their job but if they get too greedy then will be punished.Proxy battle hostile or the BOD founder are facilitating the controlling share requirements , share price rising needed to slow it down or if it broke ranks share price would fly short squeeze be near the offer price , then looks unattractive , Middle East Andoc , ME Banks imoEnterprise value £1.20 ish Discount cash flow valuation higher But that is not what they will pay imo 80p max imo Always said interesting that PFC chose Teneo and Moelis the same as Adnoc, Adnoc ipo logistics and services division raising last year $770MPFC fit in seamlessly 1.4.24 ceo adnoc gas We aim to expand internationally by acquiring new positions in the gas value chain, targeting opportunities in Europe, India, China and South-East Asia if they add value to our business.Just think how PFC fits in Just my opinion takeover or controlling stake

[ghhghh] 13/4/2024 08:22

Leon

We are going to have a major d4e. The question is at 22p , 26p or 4p.

Exactly! Yesterday's update was clearly flagging this as the most likely outcome.

A significant D4E so say 50%? That's $300m.

A half decent capital raise must be at least $150m

That's $450m of new shares to dilute existing.

If at 22p, then a bit of upside from here, SG said 26p TP.

If at 4p, then existing equity is effectively wiped out.

So why is anyone buying? It's a lousy risk reward.

Yet 36m shares traded yesterday. Are there really that many stupid PI's who view a D4E as a buy signal. Anyone know how many shares traded on the 5th March, the previous update which was more positive than yesterday's?

Or was this shorters closing because of recent increases in borrowing costs. No sign of this yet?