Under investigation

Petrofac is currently under investigation by the SFO regarding allocations of bribery. Specifically, the SFO announced in May that it would investigate allegations that the firm used scandal-hit Unaoil as a middleman to secure consultancy contracts worth an estimated $2bn. Chief executive Ayman Asfari and chief operating officer Marwan Chedid have been questioned as part of the ongoing probe, and Mr Chedid has since been suspended. 

Still, despite this overhang, during the past few months, the company has continued to win work from customers. The latest piece of work is a contract worth more than $700m with Sakhalin Energy Investment Company Ltd for its onshore processing facility on Sakhalin Island. 

Pushing ahead 

The fact that Petrofac continues to win work indicates to me that it’s business as usual at the group and despite the SFO probe, the company’s customers seem to continue to believe that it is an excellent partner to work with. 

And that’s why I’d buy the stock for its yield today. With work still coming in, the company is not going to collapse overnight, and the shares look cheap compared to current earnings potential.

Right now the shares are trading at a lowly forward P/E of 5.8, which implies to me that there’s already plenty of bad news baked into the stock. Meanwhile, the shares support a dividend yield of 7.1%, and the payout is covered twice by earnings per share.

With its discount valuation and high-single-digit yield, I believe Petrofac is a highly attractive value and income investment. 

Turnaround gaining traction 

Over the past three years, shares in small-cap broker Cenkos Securities (LSE: CNKS) have lost more than half of their value as a dearth of market activity has weighed on profitability. Pre-tax profit dropped from £26m in 2014 to just £4.4m for 2016. But now it looks as if the firm is finally turning a corner. 

Today Cenkos announced its first-half results and reported a 91% increase in revenue as well as 156% growth in profit before tax to £4.2m. Basic earnings per share for the period jumped 406% and off the back of these figures, management hiked the interim dividend payout by 350% to 4.5p. 

One of its most attractive traits, in my view, is management’s desire to return as much cash to investors as possible. Since its flotation in 2006, the company has returned £105.6m of cash to shareholders, equivalent to 160.8p per share via buybacks and dividends. That’s more than the company’s entire market value today. 

I believe this trend is set to continue. City analysts have pencilled in a full-year dividend payout of 11p per share for the company, and considering the interim payout of 4.5p, this full-year target is not wholly unrealistic in my view. Assuming the company does indeed meet this objective, for the full-year, the shares are on track to yield 9.6%, a figure I believe is hard to pass up.

The post Petrofac Limited: 1 of 2 value stocks yielding over 6% I’d buy right now appeared first on The Twelfth Magpie.

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Rupert Hargreaves does not own any share mentioned. The Motley Fool UK owns shares of Petrofac. 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.

Cenkos’ shares slumped by 16% on Monday after the Sunday Times reported that the broker, which was the nominated advisor to the infamous Quindell, had been asked to hand over a selection of documents to the SFO. 

However, the company reported today that the:

“Recent press article, citing the Company…includes a number of material inaccurate references to the Company. In particular, the Company wishes to confirm that it has not been asked to provide, and nor has it provided, any information to the Serious Fraud Office (“SFO”) in relation to any investigation being undertaken by the SFO and that the Company is not itself the subject of any SFO investigation.”

The company also says that it is working with its advisers to correct the inaccurate reporting.

Good news for shareholders

The revelation that Cenkos is not being investigated by the SFO is good news for investors. As an independent, specialist institutional securities group, focused on small and mid-cap companies and investment funds, Cenkos trades on its reputation, and an investigation into the company’s practices by the SFO, is unlikely to improve its reputation around the City.

What’s more, it’s highly likely that if Cenkos really was a subject of an SFO investigation, regulators would consider suspending the company’s licence to operate in the financial sector. As Cenkos’ principal activity is institutional stockbroking, this would cripple the business almost overnight. 

Still, Cenkos isn’t under investigation by the SFO, and the company remains authorised by the Financial Conduct Authority. 

A bargain?

It has been a rough year for Cenkos’ shareholders. Since mid-April, the company’s shares have fallen by around 30%, as the group’s growth has slowed. Indeed, for the six months to the end of June, Cenkos’ sales declined 19% year-on-year, and pre-tax profit fell 21%. Earnings per share fell 16% year-on-year to 26.1p putting the brakes on five years of stellar earnings growth for the company. Between 2009 and 2014 Cenkos’ earnings per share tripled and the company paid out a total of 50p per share in dividends to investors. 

However, despite falling profits Cenkos continues to return plenty of cash to its investors. At the end of September management declared a 7p per share interim dividend and only a few weeks ago the company returned £8m to investors via a tender offer, repurchasing 4.5m shares (7.3% of the company’s issued share capital) at £1.80 each. At the end of June, Cenkos reported a cash balance of £42m, around 40% of the company’s market capitalisation. 

The post Cenkos Securities plc Jumps 10% As It Denies SFO Rumours appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.