WorleyParsons Limited

Acquisition of Jacobs ECR to Complete by End of April 2019:  WorleyParsons Limited (ASX: WOR), engaged in engineering, procurement and construction services, updated about the acquisition of Jacobs ECR. WOR informed that transaction for such acquisition will be completed over the last weekend of April 2019, provided the fulfilment of remaining conditions. On completing the transaction, WOR will encompass ~ 57,600 people across 51 countries who will provide global sector leadership across hydrocarbons, chemicals and minerals & metals. The agreement is likely to bring significant value upside through cost and revenue synergies. ‘Worley’-new brand name will be adopted by the company with the domain name Worley.com. The name of the company - WorleyParsons Limited will be changed to Worley Limited (subject to the approval at the AGM in October 2019).

The company in its recent update informed that it has won a contract from Rio Tinto for Koodaideri iron ore mine in the Pilbara region of WA.WOR will be responsible to perform engineering, procurement and construction management (EPCM) services. The project would be executed over the span of three years.

Financial Performance in 1H FY 2019: Aggregated revenue improved to $2,566.2 million posting a pcp growth of 11.1% on the back of professional services revenue in UKIS and construction revenue. The company recorded an underlying NPAT of $98.4 million, up 25.8%, pcp.

Key financials for 1H FY2019 (Source: Company Reports)

What to Expect: Themanagement will continue to focus on costs to maintain the operating leverage with the growth in business.The management sees the balance sheet metrics to improve further (excluding the impact of capital raising). Healthy growth of 10% in the backlog to $6.6 billion is led by an improvement in markets resulting in higher activity for the next cycle of investment, thus, the management expects to deliver improved earnings for FY19 (excl. Jacobs ECR business).

Stock Recommendation: Looking at the valuation, the stock is trading at price to book value of 1.3x which is broadly in-line with the industry median (Energy) of 1.4x.The annual dividend yield for the stock comes in at 1.9% with market capitalisation at ~$6.67 billion at the current level. The stock has witnessed a decent gain of 27.69% on YTD basis. Considering the valuation parameters and current trading level, we maintain our “Hold” recommendation on the stock at the current market price of $14.970 per share (up 3.384% on 23 April 2019).  

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