Worley promises won't pay the piper

WorleyParsons’ global reach is not without challenges, but the group needs to do much more to leverage its exposures.

WorleyParsons sees earnings for the first half of this financial year to be lower than they were in the same period of 2013. This forecast, at its annual general meeting yesterday, has disappointed again, in what is becoming an all too familiar story for investors. 

Promising a better second half isn’t going to cut it with investors – Worley said the same thing last year and failed to deliver when it came to fessing up its full-year results.

Industrials with a sole domestic focus have been suffering as fewer contracts are offered up, as mining-related activity shrinks. Fortunately for Worley it has a well-established global footprint and only generates around one quarter of revenues in the tightening Australian market.

The group’s global reach is not without problems – it is exposed to the stubborn Australian dollar, which doesn’t look like moving from current levels of around 94 cents anytime soon, creating currency headwinds.

Slinging around the ‘challenging times’ line was chairman John Grill. It has become the token line for industrial-focused companies and doesn’t accurately reflect the overall market conditions Worley is exposed to. Investors take note – Worley has an enviable exposure to deep water oil development and the evolving oil and gas industry in North America. That’s hardly a challenging time.

The global deepwater drilling spend was estimated to be $US43 billion in 2012 and is expected to nearly triple to $US114 billion in 2022 according to Wood Mackenzie, a global energy and mining research consultancy.   

There is plenty of scope for Worley to leverage on this planned spend. The financial year just gone saw 70 per cent of aggregated revenue come from its hydrocarbons business, which includes services at different stages associated with activities like deepwater drilling.

Certain areas of the group’s business are exposed to industries which have shown reasonable growth over the past few years and expectations are this will continue in the years ahead. Linking industry growth to earnings appears to be missing. It is without doubt Worley’s need to turn this around, in order to improve on its static earnings per share.

In 2008 Worley had basic earnings per share of $1.42, while the 2013 financial year saw earnings come in at $1.30. Earnings per share have gone nowhere over the past five years and this is reflected in Worley’s share price, which is only treading water. 

Announcement of any contract wins from here should be received well by investors as the group has offered little guidance on potential for future contracts. Turning this into an increase in earnings per share would be even better.