Petrofac share plunge accelerates after warning

Shares of Petrofac Ltd., the FTSE 100-listed oil and gas services firm, have plunged 25% morning, their fastest rate ever, after the firm issued profit warnings for both this year and next.

Petrofac said it expected 2015 net profit to be around $500m, due to the collapse of oil prices this year, unfavourably timed projects and the cost of a legal settlement related to a project in Shetland, Scotland.

Petrofac’s new guidance suggests market forecasts of the firm’s profit for next year may have to be cut about 30%, looking at consensus estimates.

It also said net profit for this year would come in towards the lower end of its previous guidance range of $580m to $600m.

The British company, which builds and maintains oil and gas facilities, said the current 2015 forward curve for oil price could reduce net profit at its integrated energy services unit by around $45 million.

Fair reaction or over-reaction?

This stock has had a reputation for volatility for years, with a recent history of significant active short positions and about 4.5% of the traded stock held as shorts at Friday’s close, according to data provided by markets regulator the Financial Conduct Authority.

Even, so heavy trading in the stock this morning pushed volumes to the average for the entire day within just 20 minutes.

This together with the 25% fall, at its worst, suggests a magnitude of reaction that might be somewhat out of kilter, even taking into account the firm’s reputation for a difficult-to-predict stock.

Whilst Petrofac’s listed peers are falling in sympathy, their stock falls are limited to about 3% each.

And it’s also worth remembering that today’s warning by Petrofac is its third in just over a year.

Even so, whilst analysts had already factored in oil price weakness, the operational and execution issues implied by today’s guidance downgrade appear to be more recent.

It’s notable that no analyst registered as covering the stock by Thomson Reuters had a sell rating before the warning, with 12 recommending the stock as a ‘buy’ and 8 others having a ‘hold’ rating or equivalent, suggesting no action.

Either way, this latest warning has pushed the stock to levels last visited during the winter of 2009 and early 2010, when the region acted as a formidable resistance, above which the shares rallied strongly for months, once the area was breached.

This suggests a measure of support will be seen at current levels.

City Index’s Daily Funded Trade in the title, seen in our Advantage Trader platform, shows signs of having reached an at least temporary limit on a half-hourly basis .

Still, the same support pattern we saw in the chart for the underlying stock is revealed by a picture using weekly bars for the DFT.

And selling momentum is further validated by the downside visible on a weekly basis in the MACD and percentage oscillator momentum systems.