Worley Parsons – Australia’s leading engineering business?
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.
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