WorleyParsons Limited

WorleyParsons signs a 5-year agreement with Sonatrach:  WorleyParsons Limited (ASX: WOR) signed a five-year framework agreement with Sonatrach in Algeria. The agreement entails WOR will provide project management services to support Sonatrach plans to develop its oil and gas production capacity over the next five years across several key projects. It is to be noted that Sonatrach, the largest Algerian company intends to become the world’s fifth largest national oil company. The company recently announced its half-yearly results. The Aggregated revenue was up by 11.1% coming in at $2,566.2 million. The aggregated revenue has increased for the fourth consecutive six-month period. The underlying EBIT was up 17.6% to $156.3 million vs. $132.9 million in 1HFY2018. The underlying EBIT margin came in at 6.1% vs 5.8% in 1HFY18, the improvement in EBIT margin showcases the company’s ability to improve its operating leverage. The underlying NPAT was up a healthy 25.8% to $98.4 million also backed by a healthy improvement in NPAT margin at 3.8% vs. 3.4% in 1HFY18. However, the improved performance has not reflected in the improvement of operating cash flow. The operating cash flow was down by 52.6% coming in at $21.0 million vs. $44.3 million in 1HFY2018. On the balance sheet front, the company saw its net debt increased to $783.9 million up from $662.5 million as at June 2018. The gearing us at 25.7% well within the company’s internal target of 25% to 35%. The company has improved its liquidity position with weighted average tenure increasing from 2.2 years to 4.2 years. On the order backlog front, the company has yet again increased its order backlog to $6.6 billion as at 31 December 2018, an increase of 10% from the prior corresponding period. The number of contracts awarded by its customers in the 1HFY19 was the highest for the past 10 years. The company backed by improved fundamentals has increased its interim dividend in 1HFY19 by 25% to 12.5 cps vs. 10.0 cps paid in 1HFY18.


HY2019 Key Financials- (Source: Company Reports)

Stock Price Performance: The stock has healthy delivered a YTD return of 27.69%. At the same time, it has delivered a return of 32.12% and -6.34% in the past three months and one month respectively. The company has improved its overall operating performance as collaborated above, however the market seems to have priced in the good operating performance and that is reflecting in the company’s current PE of 31.07x as compared to a peer mean of 21.9x, also on EV/ EBITDA front the company is trading at a relatively higher valuation of 10.1x vs. peer mean of 9.4x. Considering the improvement in operating performance, the recent stock price movement and overlaying with the current valuation matric, we, therefore, maintain our “Hold” recommendation on the stock at the current market price of $14.720 ( up 1.657% on 21 March 2019).  
 

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