Directors’ Deals: Petrofac directors buy the dip

As the 86 per cent slide in Petrofac’s share price between 2018 and 2022 indicates, there have been more sellers than buyers in its shares in recent years.

There are well-documented reasons for this. In October 2021, the Serious Fraud Office secured convictions against the energy services company for seven counts of bribery. Petrofac admitted its executives paid £32mn of bribes to win oil contracts worth around £2.6bn in Iraq, Saudi Arabia and the United Arab Emirates. 

Former chief executive Ayman Asfari, who first brought the company to the stock market back in 2005, resigned in the midst of the scandal in 2020, although he remained on the board as a non-exec. The company brought in ex-Shell executive Sami Iskander as his replacement early in 2021, but then announced in November 2022 he will move on “to pursue other interests”. He will be replaced from April this year by Tareq Kawash, currently a divisional head at Houston-based McDermott International.

Petrofac was temporarily banned from bidding for new work in Saudi Arabia and the UAE, but its suspension in the latter market was lifted early last year.

Still, revenue for 2022 is likely to fall by around $500mn (£415mn) to $2.5bn due to slower than expected business wins, the company said in a trading update last month. Cost overruns on “Covid-affected legacy contracts” also means it is on track to post an operating loss of at least $100mn for its third successive year.

Following the update, Petrofac’s share price slumped below 66p, sinking its market capitalisation to under £350mn. Asfari, Iskander and chair René Médori took this as their cue to add to their holdings. Asfari spent £650,000 increasing his stake to 16.3 per cent, making him the biggest single shareholder. 

There’s an argument that Petrofac’s shares look cheap on a pure valuation basis, but both financial and reputational risks linger. The company’s shares remain among the most shorted on the London Stock Exchange.

Rio exec sells after price rebound

Uncertainties pile on top of uncertainties when it comes to global commodities markets coming into the new year — but the key near-term question for miners such as Rio Tinto is whether China’s Covid-19 wave will cancel out benefits from the removal of lockdown rules that had stopped mass transmission of the virus. 

Economic forecasts for the next month or so are not much of an indicator, given the quieter winter and Chinese new year period, although the December PMI report for China showed the highest confidence in the 12-month outlook since February, as per S&P Global. The PMI figure remained slightly below the baseline level of 50, but this was an improvement on previous months. 

Rio Tinto itself is trading at the highest level since June, after a steady uptick since the start of November. Alf Barrios, chief commercial officer, took advantage of this with a share sale worth £1.5mn on December 29. Rio did not respond to a request for comment about the sale. 

The company was one of the UK’s biggest dividend-payers in 2022 but the continuation of that in 2023 will depend on industrial demand in China. So far, a December price rebound for iron ore has held up, with the price back over $110 (£92) a tonne for the first time since September. 

Looking further ahead, the company is talking up the long-term outlook for its key product, as it is moving ahead with developing the enormous Simandou project in Guinea. The deposit is seen as a way for China to reduce its reliance on Australia (a US ally), but Rio Tinto remains heavily involved. “Isn’t it beautiful that we finally seem to be able to bring on Simandou because the world needs it more than ever,” said Rio chief executive Jakob Stausholm at an investor day at the end of November.