Investment Column: On the surface, Petrofac's value is evident

DS Smith; Dart Group

Our view: Buy

Share price: 1223p (-28p)

The big bet for Petrofac this year is on Turkmenistan. The oil and gas services company is already seen by the market as a safe haven while fallout from BP's disaster in the Gulf of Mexico buffets oil stocks.

Yesterday, Petrofac published a pre-close trading update, ahead of its half-year results in August, which showed its operations were in line with forecasts. It expects its backlog of contracts to be higher at the end of the year than it was at the start, thanks to its bidding pipeline strengthening.

Based on orders secured to date, the total backlog should be about $6.9bn at 30 June (compared with $8.1bn on 31 December), comprising $5.5bn from engineering and construction and $1.4bn across the other reporting segments. Gross cash balances are forecast to be about $1bn at the end of this month.

Ayman Asfari, the chief executive, said: "We have had a successful start to 2010 and we remain confident this will be another year of strong growth.

"Our bidding pipeline, which is focused on major hydrocarbon regions where significant expenditures are expected, remains strong and we expect our backlog to finish the year higher than it began."

But the market's interest was rightly trained on the positive prospects for Petrofac's South Yoloten scheme in Turkmenistan. The $100m first phase of the gas project was announced in December with a view to establishing the viability of developing the former Soviet state's assets.

There were no firm commitments from Petrofac yesterday but strong hints that it might move ahead with the second phase "in the near future". At a cost of $4bn, the full engineering, procurement and construction of the scheme would be the largest Petrofac has ever contracted, adding up to 30 per cent to its order backlog.

Petrofac already performs well. With exposure to low-cost regions such as the Middle East, limited work offshore and none at all in the Gulf of Mexico, the Deepwater Horizon disaster will have no impact on the company.

Its share price-earnings ratio is set to be about 17 times this year dropping to 14 next, according to Credit Suisse. Add in the potential in Turkmenistan, not to mention the opening up of Iraq, and even a 240p price increase since January does not detract too much from the stock's attractions. Buy.

DS Smith

Our view: Buy

Share price: 121.5p (+1.5p)

Without knowing it, countless Europeans come into contact with DS Smith every day. The FTSE 250 company makes corrugated cardboard packing for products such as Cadbury Creme Eggs. But like other companies linked to the consumer goods market, DSS suffered a fall in revenues in 2008 and through most of 2009 as demand tanked during the credit crisis.

Yesterday, DSS, whose customers also include Procter & Gamble, and Nestlé, said demand began to recover "modestly" late in its financial year to 30 April. Despite this, its revenues fell marginally to £2.01m and its pre-tax profits, before exceptionals, were down by 5.8 per cent to £68.3m over the year.

But many of the metrics at DSS, which also recycles waste paper for Tesco, are now heading in the right direction. Its full-year dividend was up by 4.5 per cent to 4.6p and its adjusted earnings per share rose by 2.4 per cent to 12.9p. Furthermore, the company's shares now trade on a price-earnings ratio of 11 times, which makes them look reasonably cheap.

While UBS analysts warned that its dividend yield remained at the low end of its historic range of 3.3 per cent to 8.8 per cent, we suggest that investors take DSS's shares off the shelf as the global recovery takes hold. Buy.

Dart Group

Our view: Buy

Share price: 56.75p (+2p)

Ash clouds, BA strikes and the worldwide recession. In short, the aviation industry has had it tough in recent months. Of course, that not only hits the likes of British Airways, but also some of the smaller carriers too.

Dart Group, which owns the budget airline Jet2.com operating out of Leeds Bradford airport, said yesterday that both profits and revenues were lower than last year's. But anyone expecting tales of woe will be disappointed. The company insisted it was confident despite the fragility of airline markets. "We are reasonably well placed to deliver improved financial performance in this financial year," Dart said.

That will be music to the ears of its investors, who have seen the share price fall over the past 12 months while many alternative investments have gathered pace. Shareholders will also take comfort from the fact that Dart maintained its dividend, with a decent yield of more than 2 per cent.

It will be a bumpy ride but we would back Dart, so buy.