WOR Details

FY21 Key Results Highlights: Worley Limited (ASX: WOR) is a professional project and assets services provider. It mainly provides engineering designs, project delivery services and maintenance & support services to sectors including energy, chemicals, and resources.

• Fall in Revenues: In FY21, the company reported underlying revenues of $8,774 million, down by 22% Y-o-Y Vs $11,249 million in FY20. Such change is due to decline in demands from customers end (COVID-19 pandemic) and decrease in margin, mainly in Americas and APAC region.
• EBITDA Details: In FY21, the company reported a decline in underlying EBITDA of 37.01% on a year over year basis.
• Operational Savings: Other than the cost synergies savings of $190 million from the ECR acquisition, WOR managed to achieve an additional saving of $327 million for FY21 from the target of $350 million by the end of 30 June 2020.
• Stability in Dividends: WOR declared a final dividend of 25 cents per share in FY21, with a payment date of 29 September 2021.
• Decline in Net Debt: A decrease in Net Debt has been reported from $1,781 million at the end of FY20 Vs $1,556 million at the end of FY21.
• Cash Balance Details: The cash balance at the end of FY21 was reported as $522 million Vs $467 million at the end of FY20.
• An amount of $ 36 million, from sale proceeds of a total $48 million of Capital Projects Advisory – ANZ received in FY21, rest to be received in FY22.

Revenues Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company is vulnerable to the following risks which also caused the business decline and volume reductions:

• The COVID-19 has impacted the demand from the customer side markets and mobility restrictions, causing site access restrictions and project deferrals.
• Business Mix altered with the major change in lower margin construction work.
• Using different commercial models in different business segments might change the business mix, thereby changing their risk profile.

Outlook: Its Sustainability Pivot alone represents $2.8 billion of revenue, constituting 32% of total revenue for FY21. Pivot is gaining its momentum and volume due to the acceleration in energy transition and circular economy opportunities. Looking forward, it is expected to give higher growth than the traditional business with more favourable margins. With its cash increase in FY21, WOR targets cost savings (net benefit) as an amount of $44 million in FY22, excluding cost synergies savings of $6 million owing to ECR acquisition. Its overall focus for comings years is investing majorly in sustainability pivot, digital enablement, and process technology.

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

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: Over the last three months, the stock has provided a negative return of 15.55% and is trading lower than the average 52-week price level band of $9.065 and $14.01. The stock has been valued using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). After considering its logistics challenges and coping with the mega-industry trends, the company can trade at some discount to its peers' average. For the purpose of valuation, peers like Ampol Ltd (ASX: ALD), Beach Energy Ltd (ASX: BPT), Monadelphous Group Ltd (ASX: MND), and others have been considered. Considering the company’s financial performance, operational cost saving, synergies, stable dividend payout, current trading levels, and valuation, we give a “Buy” rating on the stock at the current market price of $9.98, as on 15 September 2021, 04:08 PM (GMT+10), Sydney, Eastern Australia.

WOR Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

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 the 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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