Shares in Petrofac are trading higher this morning despite the oil engineering firm announcing a net loss of $17m in its latest half-year results. The reason for positive market reaction is simple: most of the loss can be attributed to exceptional impairment charges of $207m (90% non-cash) related to the sale of the JSD 6000 deep-water installation ship in April, a significant net positive for Petrofac in terms of capital unwind.

Stripping out these one-off items, net profit was actually +20% YoY. Most other P&L numbers were also in line with expectations, while EBITDA of $333m (+3% YoY) beat analyst consensus. And although net debt rose, it was in line with expectations and should decrease in the second half of the year.

Another key positive for Petrofac this year has been the growth of its order book, with new orders of $3.3bn secured in 2018 (including the new $600m contract in Algeria) adding to the backlog of $9.7bn. And the already secured order intake puts the company within 6% of the $3.5bn FY addition that most analysts are expecting from the company. With several months of the year still left, might it even beat this number?

As usual, what markets care the most about is outlook and a healthy order book (with more competitive bids in progress), favourable market conditions (energy markets holding strong this year), as well as expected reductions in capital expenditure to $150m by year end make Petrofac well-positioned to deliver healthy returns to shareholders.

2017 investigation by UK’s Serious Fraud Office has put a damper on Petrofac shares, but the focus this morning has been on the expanding order book and new contract wins. Markets were basing their hopes for the shares on the revitalisation of company’s contract pipeline and Petrofac delivered above and beyond consensus.

Artjom Hatsaturjants, Research Analyst, 29 August 2018