• Tue. Sep 27th, 2022

UK shares: should I buy this oil and gas infrastructure stock?

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop

I believe there are a number of quality UK shares trading at dirt-cheap levels that could boost my holdings. One stock I am considering adding is Petrofac (LSE:PFC). Let’s take a look at some pros and cons of me buying shares to help me decide.

Oil and gas infrastructure

As a quick reminder, Petrofac provides oil and gas infrastructure services throughout the world. These services include construction, maintenance, and support services to energy and oil businesses.

So what’s happening with Petrofac shares currently? Well, as I write, they’re trading for 116p. At this time last year, the stock was trading for 100p, which is a 16% return over a 12-month period.

To buy or not to buy

So what are the pros and cons of me buying Petrofac shares?

FOR: Petrofac has a vast profile and presence. It is truly a globally diversified business and has contracts throughout the world. This is important as it can leverage this to boost performance and returns. It recently secured a lucrative contract worth over $1.65bn with the Abu Dhabi National Oil Company. Furthermore, it managed to secure over $2bn worth of orders in 2021 overall, which was a significant increase compared to the previous year. It has continued this momentum in 2022, with a few noteworthy contract wins, including a $100m deal with Cairn Energy.

AGAINST: Petrofac was involved in a fraud and bribery scandal a couple of years ago. These types of scandals affect investor sentiment badly. In the end, the business was fined £77m and a senior employee pleaded guilty to bribery charges. Sometimes, these types of issues have a negative effect on investor sentiment and can also affect future business negatively too.

FOR: I learned that Petrofac has decided to join the renewable energy market. It recently signed a memorandum of understanding with Ocean Seawind Technology for a contract maintaining wind turbines in the Mediterranean Sea. It recently announced its “new energy team”, created to focus on the renewable energy sector. With this development, the ability to explore cleaner energy solutions could provide Petrofac with exciting new opportunities that could boost performance and returns longer term.

AGAINST: I understand that the oil and energy market is volatile. As economic headwinds continue throughout developed countries, demand could be affected. In turn, demand for Petrofac’s services could also be affected. I will keep a close eye on developments here.

A UK share I would buy

I would be willing to open a small position in Petrofac shares. The essential nature of the business, and the fact that oil and energy is pretty much a global staple, help me make my decision.

Furthermore, Petrofac shares look decent value for money to me on a price-to-earnings ratio of just 10 at current levels. Oil and energy can be a volatile yet lucrative market, so I will keep a close eye on developments, especially with continuing macroeconomic headwinds to take into account. This is why I would only buy a small number of shares to start with.

The post UK shares: should I buy this oil and gas infrastructure stock? appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.