WorleyParsons Ltd (ASX: WOR)

Dividend Payment resumes after an extended period of lull: Up 7% on February 21, 2018, WorleyParsons’ shareholders seem to be rejoicing the group’s move to resume dividend payments (at the back of strong balance sheet) which were not being paid since 2015. 1H 18 Underlying profit after income tax expense rose 37% to $78.2 million against previous year corresponding period figure of $57.1 million. The group has been benefitted by the UK acquisition that supported return to revenue growth. Its gearing ratio has also improved to 26.1% from 29.1% and leverage ratio reduced to 2.1x from 2.4x. Aggregated revenue improved 6.7% to $2,310.1 million on steady market conditions and the inclusion of revenue from the AFW UK acquisition (WorleyParsons UK Integrated Solutions).

While group’s net interim profit has slipped 10% to $9.2 million, WOR intends to pay an interim dividend of 10 cents per share after generating a $44.3 million net inflow of cash against the outflows of $84.8 million last year. Profits attributable to members were $1.4 million compared with a loss of $2.4 million witnessed last year while a lower income from procurement activities impacted the revenues. The group’s markets seem to be stabilising with strength regained in the commodity prices while a broader recovery is yet to be seen. However, WOR does face the challenge in recovering payments from four state-owned enterprises, with payments lower than expected. Nonetheless, the group is on track with regards to its targeted reduction in working capital of $300 million over the medium term. The group will pay interim dividend in March with a record date of February 28, 2018. We have a “Hold” recommendation on the stock at the current price of $15.20
 

Santos Ltd (ASX: STO)

Turnaround in business: Santos loss reduced in FY17 as the group has removed substantial costs, reported a material increase in underlying profit (433%), generated significant free cash flow and reduced net debt. However, in an attempt to manage the debt, the group is not paying any final dividend. Its core assets have performed well and resulted in sales volumes above the upper end of guidance and production toward the top end of guidance.


Full Year Performance (Source: Company Reports)
 
The full year result has been impacted by net impairment charge of US$689 million after tax taken in the first half against the GLNG (US$867 million) and AAL assets (US$149 million), partially offset by a positive net write-back to the Cooper Basin of US$336 million. STO has maintained its 2018 guidance and is on track to supply about 70 petajoules of gas into the east coast domestic market in 2018. We have a “Hold” recommendation at the current price of $5.02

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