March 24, 2014 4:37 pm

Kentz bucks oil services slowdown

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Kentz, the FTSE 250 engineering and services group, pulled away from rivals in the sector by announcing a 13 per cent increase in profits for last year.

The company also said it expected earnings per share of $1 this year, up 47 per cent on 2013.

The outlook for oil service companies has darkened as the oil majors, under pressure from shareholders to curb their spending, defer investments in new projects and announce reductions in capital expenditure.

That has come with the sector already under pressure, partly because of contract delays. Saipem of Italy swung to a loss last year, while Technip of France’s fourth-quarter earnings fell by 9 per cent. Petrofac recently repeated guidance that it expected to achieve little or no growth in earnings this year.

Christian Brown, Kentz’s chief executive, acknowledged cooling off in the oil sector, with the supermajors expected to spend about $150bn this year – 6 per cent less than in 2013.

But he said national oil companies, midstream operators and smaller oil groups such as Anadarko, Apache and Repsol were still spending a lot. As a result, he said, the fact that the majors were pulling their purse strings tighter was “not going to be that material” to Kentz. “Around $700bn of capital goes into this sector every year,” he said.

Kentz fought off two takeover bids last year, one by Amec, its FTSE 100 oil services rival, and one by Stuttgart-based M+W Group. It then went on to itself acquire Valerus Field Solutions, a privately owned gas handling specialist, for $435m in December.

The outlook for oil service companies has darkened as the oil majors, under pressure from shareholders to curb their spend

Kentz said its diluted earnings per share increased last year by 17.3 per cent to 68.07 US cents, while revenue was up 6 per cent at $1.66bn. Profit before tax was up 12.6 per cent at $118m.

The company said its total 2013 dividend payment was 17.5 cents per share, up 21 per cent on 2012.

Kentz said its backlog increased to $4.1bn at the end of February 2014, a 58 per cent increase since December 2012. Mr Brown said the company expects growth this year across all three of its business units – engineering and projects, construction and technical support services – and all of its core geographic markets.

Kentz stands out from the sector because four-fifths of its backlog consists of reimbursable contracts rather than fixed-sum contract work that offers higher reward but also higher risk if hit by cost overruns. However, Mr Brown said he expected a 60:40 split between the two kinds of contracts in the future.

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