Worley Parsons Limited

WOR Details

Cost and Revenue Synergies to Support the Earnings:Worley Parsons Limited (ASX: WOR) provides engineering design and project delivery services to the industries such as Oil & Gas, minerals, metals & chemicals, infrastructure, etc.
 
Recent Updates/Developments: Completion of the acquisition of Jacobs ECR division:In the month of April 2019, the Group completed the acquisition of Jacobs ECR division of Jacobs Engineering Group Inc. for which WOR had entered into a binding agreement in October 2018. The consideration for such acquisition was US$3.2 billion. The name of the company will be changed to Worley Limited, subject to the approval at AGM, to be held in October 2019. The merged entity will employ 57,600 people across 51 countries.
 
The company recently updated that its substantial holder – Jacobs Engineering Group Inc. has reduced its voting rights from 11.21% to 9.90%.
 
The company recently has issued 3,012 fully paid ordinary shares and 1,480,244 Performance rights (PRs), pursuant to its Performance Rights Plan, with the purpose of equity compensation benefits for senior management.
 
New Business Profile and Reporting: The company has set a transformational strategy with enhancing its leadership position in chemicals & petrochemicals and capturing the opportunities available through the global energy transition.
 
The lines of the business for the new entity will comprise – Chemicals (43%), Energy (47%) and Resources (10%). The new entity will cater to the region – Americas (55%), APAC (15%) and EMEA (30%).
 
In-line with its strategic move, the company will integrate its operations to deliver the cost and revenue synergies. The company will continue to focus on achieving operating leverage with programs institutionalized to address revenue growth, gross margin and cost control along with the sustaining performance management embedded at the performance unit level. The company has revised the cost synergy target from AUD130 million to AUD150 million. The company also mentioned that most of the regions and businesses are performing in-line or ahead of the targets.
 

DSO by Business (Source: Company Reports)
 
Debt Structure of the new entity will provide the Group with additional flexibility and liquidity to meet its working capital and strategic growth requirements. The new syndicated facility consists of a USD500 million multi-currency revolving credit facility and USD800 million term loans maturing in 2024.
 

Debt facility Maturity Profile (Source: Company Reports)
 
Coming to the Backlog, the definition has been revised to align across the new organization. Backlog by region at the end of March 2019 stands as 9.6 for Europe, Middle East, Africa (EMEA), 5.3 for Americas and 2.5 for Australia, Pacific, Asia, China (APAC). Backlog by sector at the end of March 2019 was 8.1 for chemical, 7.4 for energy, and 1.9 for resources.
 
Global Energy Transition: As per the World Energy Outlook 2018 by International Energy Agency, oil & gas segment is expected to increase annual sanctioned investments through to 2025.  The change in the energy mix is likely to provide excellent opportunities to WOR’s core sectors- Upstream & midstream, downstream & chemicals, mining, minerals & metals, and power & new energy. With the pick-up in approvals of new upstream projects, the upstream investment to 2022 is projected at a CAGR of 11% for gas and 4% for oil.


World primary energy demand by fuel and scenario, mtoe (Source: Company reports)
 
At the current market of $15.110 per share, the market capitalization for the stock stands at ~$7.63 billion with an annual dividend yield of 1.87%. The stock has gained ~29.72% on YTD basis. With the revenue and cost synergies opportunities, access to sustaining capital spend, capex and opex balance to improve resiliency in earnings, extended capabilities across its core markets, enhanced global footprints, we expect the new entity to emerge as a stronger business profile. Strong backlog, transformation planning to accelerate strategic growth, and excellent industry outlook augur well for the growth of the new entity. Currently, the stock is trading slightly above the average of 52 week high and low prices of around $15.37 with a PE multiple of 31.57x. Hence, we recommend a “Hold” rating on the stock at the current market price of $15.110 per share (up 2.719% on 01 July 2019).
 

WOR Daily Chart (Source: Thomson Reuters) 

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