Companies

  • Worley Parsons – Australia’s leading engineering business?

    rogermontgomeryinsights
    October 20, 2009

    On Your Money Your Call with Nina May on 24 September 2009 I promised to value Worley Parsons.

    What is WOR worth? After running my ruler over the business’ historical fundamentals, I estimate WOR is currently valued at $27.44 (2010). The share price is $29.43, making it a little expensive at the moment.

    But WOR is a business with attractive underlying long-term investment fundamentals, including an average return on equity of 23%, a modest net gearing level of 33% and bright prospects with ongoing demand for Australia’s resources.

    This demand should underpin capital spending programs by our miners in the future and hence the need for engineering companies to continue servicing a market that has grown remarkably over the past 10 years.

    WOR is one to add to your watchlist should a more rational share-price present itself.

    By Roger Montgomery, 20 October 2009

    Update 28 October, 2009

    Please keep in mind that for WOR there is a very strong likelihood that the businesses future earnings will be materially impacted by the strong Australian dollar. 25% of Worley’s revenues come from Canada, 24% for the US and latin America, 15% from the Middle east / Asia and 11% from Europe and Africa.

    Although many analysts and market commentators currently have concerns about the currency and the headwinds facing earnings, these have to be weighed up against the strong cash flows WOR is generating and the fact it is a leader in its sector globally. Also, a high oil price will be a positive. A high oil price makes previously uneconomical finds profitable and increases revenues for many firms which are already producing. More revenue equals bigger budgets for capital projects. Obviously. Saying this, consensus forecasts have fallen in recent days. This has led to a revision in my valuation to $26.08. This is by no means is a recommendation, merely a discussion about the strengths of the business and also its weaknesses in the face of a higher Australian dollar.

    by rogermontgomeryinsights Posted in Companies.

  • Is LMC investment quality?

    rogermontgomeryinsights
    October 1, 2009

    This blog is for viewers of Nina May’s Your Money Your Call program on Sky Business Channel last week who requested a valuation for Lemarne Corporation Limited (LMC).

    LMC’s history is a lumpy one. It is no JB Hi-Fi or The Reject Shop in terms of its economic performance. This makes the process of valuing the company more subjective.

    ROE over the last 10 years has averaged 14%, varying between -1.2% to 25.8%. Since a capital return that reduced equity, and the sale of C10 Communications, ROE has been higher.

    Cash flow is good (exceeds reported profits) and the balance sheet is debt free. Debt free, an attractive ROE and good cash flow are desirable characteristics, particularly when they appear in concert. Management have also shown they are owner-oriented, buying back shares last year at depressed prices equivalent to 10 per cent of today’s market cap, and plan to also provide a capital return through an unfranked dividend of 50c.

    But this a small company, and I have done no work identifying whether any competitive advantages (the ability to regularly raise prices without a loss of sales volume) exist. They often don’t in small businesses. If they do, they tend not to be small for long. The focus is now on one business – Lemtronics. On first impressions, it is not the most memorable of brands.

    My estimate of value is $4.00 – $4.50, but there are plenty of other companies whose businesses I know better.

    By Roger Montgomery, 1 October 2009

    by rogermontgomeryinsights Posted in Companies.