Worley Limited 

WOR Details

Jacobs Sells its Worley Shares: Worley Limited (ASX: WOR) is one of the leading global providers of professional project and asset services in the energy, chemicals, and resources sectors. It also supports digital, supply chain, construction management, capable of reducing emissions and moving towards a low carbon future. Recently, Jacobs Engineering Group Inc announced to sell all its shares (9.85%) in Worley to Citigroup Global Markets Australia Pty Limited and represent 51,381,257 ordinary shares.

Other Key Updates: A substantial shareholder, T. Rowe Price Associates, Inc., has increased its holding to 40,805,674 ordinary shares with a voting power of 7.81%In addition, Anne Templeman-Jones, the director, has undergone a change of interest and acquired 6,335 ordinary shares.

FY21 Financial Performance:

• The company has recorded a decline in its aggregated revenue by 22% to $8,774 million in FY21, compared to $11,249 million in FY20, impacted by the COVID-19, which slowed down the global activity and led to delay in project sanctioning.
• The company has delivered an underlying EBITA performance of $468 million in FY21, down by 37% from $743 million of the prior period. This decline was due to reduced volume, site access restrictions and strong Australian dollar. Nevertheless, the company delivered an improved underlying EBITA in 2HFY21.
• It reported a decline in underlying NPATA of 35% to $281 million in FY21 from $432 million in FY20, impacted by lowered demand in the customer end market.
• The strong cash position of the company stood at $522 million as of 30 June 2021, increased from $467 million reported at the end of FY20.

Statutory Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has a significant impact on its operation due to low demand and economic slowdown, and still, the uncertainty prevails.
• Foreign Currency Risk- The company’s operations are exposed to the global market, due to which the company could face the foreign currency risk.

Outlook:

• An increase in backlog and factored sales pipeline in H2FY21 is a positive indicator for improved performance in the near-term future.
• It focuses on the cost-saving program to gain the benefit once the market recovers and is expected to progress its strategic awards in the early phases of 2HFY22
• The company accelerate its strategic transformation by investing in sustainability, digital enablement, and process technology. It further expects an improved performance in FY22, due to recovery in different sector and region.
• The company strategies to drive long-term shareholder value and growth initiatives with global leaders delivering knowledge-based project and asset services and diversifications.
  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company had declared an unfranked final dividend of 25 cents per share, which was paid on 29 September 2021. The stock of WOR is trading below its average 52-weeks' levels of $8.920-$14.010. The stock of WOR gave a negative return of ~5.53 % in the past one month and a positive return of ~3.66% in the past one year. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers' average EV/Sales multiple, considering the economic slowdown and a lower net margin. For the purpose of valuation, peers such as Ampol Ltd (ASX: ALD), Monadelphous Group Ltd (ASX: MND), CIMIC Group Ltd (ASX: CIM) and others have been considered. Considering the current trading levels, indicative upside in valuation, decent balance sheet, strategic diversification, cost-saving program, optimistic outlook, we recommend a 'Buy' rating on the stock at the current market price of $9.785 as on 30 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

WOR Daily Technical Chart, Data Source: REFINITIV 

Energy Resources of Australia Ltd.

ERA Details

Reforecast the Roger Project cost and schedule: Energy Resources of Australia Ltd (ASX: ERA) engages in uranium mining. It operates in the Ranger mine, Australia’s longest continually operating uranium mine. Recently, the company has announced to conduct a reforecast of the rehabilitation provision for the Ranger Project Area, which could be beyond the expected cost and schedule data.

H1FY21 Financial Performance:

• The company has recorded a decline in its revenue from ordinary activities by 66% to $60.2 million in H1FY21, compared to $46 million in H1FY20, impacted due to lower sales volume for the period, which was 351 tonnes and the unfavourable impact of the strengthening of the Australian dollar.
• ERA has reported total current inventories of $85.98 million in H1FY21, a decrease from $132.70 million in H2FY20. However, government grants increased to $147.23 million in H1FY21.
• The company has posted a loss of 113% to $5.26 million in H1FY21 against a profit of $40.2 million reported in 1HFY20. Any changes in cost, scope or schedule could impact a drawdown or return in overall project contingency.
• At the end of the period, the cash position of the company stood at $190.53 million as of 30 June 2021 vs $204.35 million as of 31 December 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Delay in Projects- The company has faced the challenge of delay in projects during the COVID-19 pandemic. If, this uncertainty still prevails, the company’s financials might get impacted in the near-term.
• Climatic Risk: The company is exposed to climatic risk, which is uncertain and could impact the company's operational activity.

Outlook:

• The company expects further potential growth opportunities and long-term sustainable operations in Ranger Project Area.
• ERA near term strategies is to maximise cash flow generation from the remaining inventories of drummed uranium oxide and evaluate the progress of inorganic growth.
• The company is strategically holding substantial inventories of uranium oxide and aims to sell down once the prices increases.

Stock Recommendation: The stock of ERA is trading below its average 52-weeks' levels of $0.145-$0.580. The stock of ERA gave a negative return of ~14.81% in the past one week and a positive return of ~130.0% in the past one year. On a TTM basis, the stock of ERA is trading at a P/Book value of 6.5x, lower than the industry average (Uranium) of 11.6x. Considering the current trading levels, valuation on TTM basis, government grants, strategic holding its inventory, short-term priorities, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.335 as on 30 September 2021, 3:49 PM (GMT+10), Sydney, Eastern Australia.

ERA Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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