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ASX:WOR
Worley Ltd
Investment Summary
The fund managers believe Worley Ltd (WOR) is well-positioned to benefit from the accelerating global energy transition towards clean energy. They note that the energy sector is experiencing a structural shift supported by continued significant investments in hydrogen, carbon capture, and renewable energy. In their opinion, despite historical volatility associated with oil and gas investments, the outlook now shows improving returns, bolstered by the need for decarbonization and increasing capital expenditure from clients. Recent strong financial results indicate a positive trajectory for revenue and EBITA margins, with a potential return to double-digit profitability in the medium term. Nevertheless, concerns over allegations of historical corruption and reduced spending from oil and gas majors have impacted share prices. The fund managers remain optimistic about Worley's future, citing ongoing project wins and strategic importance in the evolving energy landscape, supported by a favorable regulatory environment and attractive valuations relative to the broader market.
Commentary From The Managers
Ten Cap
28 Feb 2025
$15.22
- Ten Cap added Worley Ltd (WOR) to the portfolio due to increased confidence in its earnings profile
- WOR has multiple self-help opportunities available for growth
- The company benefits from a favourable regulatory environment
- Currently trading at a 15% discount to the ASX 200, compared to its usual 5% premium
- WOR has initiated share buybacks for the first time in its history, indicating a strong capital position
Endeavor Asset Management
28 Feb 2025
$15.22
- Worley (WOR) delivered a strong first half result, with EBITA margins exceeding consensus expectations and guidance reaffirmed.
- The share price rose 5% over the month.
- A $500 million share buyback was announced, showcasing management’s confidence in future growth.
- Recent meetings with management reinforced optimism about expansion in the Middle East and the United States, where demand for engineering services is strong.
- Competitive dynamics are favorable, with some peers facing financial constraints, allowing WOR to strengthen its backlog and take market share.
- Trading at 14x FY26 P/E, the stock presents meaningful upside potential.
- Offers a 4% fully franked dividend, providing an attractive income stream for investors.
Endeavor Asset Management
30 Nov 2024
$13.76
- Worley's share price declined in November due to concerns over reduced capital expenditure by major oil and gas clients.
- Despite this, the company’s outlook remains promising.
- Worley is shifting focus toward sustainability and renewable energy projects such as hydrogen, carbon capture, and renewable fuels.
- The company is well positioned for long term growth.
- Endeavor Asset Management continues to hold its investment in Worley, anticipating enhanced future earnings stability.
Cooper Investors
31 Mar 2024
$16.78
- Cooper Investors increased their Worley (WOR) holding during the quarter.
- This decision capitalized on share price weakness due to specific events.
- A significant issue was a commercial arbitration tribunal finding against Worley regarding claims for payment from Ecuador.
- The tribunal ruled that money sought was not payable due to corruption associated with contract awards.
- While the tribunal did not accuse Worley of corruption, it noted wilful blindness to a subcontractor's corruption.
- Worley maintains there is no evidence of their corruption and is considering an appeal.
- Ecuador is pursuing repayment of US$370mn from Worley via the courts.
- Concerns exist regarding risks from these claims, especially on Worley’s ability to win future work.
- Cooper Investors is confident this won't impact future work, citing numerous new awards after the news.
- The allegations pertain to work executed from 2011-2017, with no direct evidence of Worley’s corruption.
- Cooper Investors is attracted to Worley’s exposure to a potential supercycle in engineering and construction driven by the energy transition.
- Worley is positioned to benefit from material investments needed to meet global emission-reduction targets.
Endeavor Asset Management
31 Jan 2024
$14.82
- Global energy transition experts have identified Worley (WOR) as a key player.
- Worley experienced a decline in share price in January due to allegations of corruption related to historical contracts.
- The Company denied allegations and corrected false media statements through an ASX release.
- Negative sentiment remained despite the Company's efforts, compounded by a US government announcement pausing LNG project approvals.
- Despite short-term challenges, the energy transition cycle continues to show strength.
- Worley is considered well-positioned to benefit from a significant work pipeline.
- Endeavor Asset Management took profits in December at ~$17/share, amounting to a 14% gain over January's closing price.
- Currently, WOR trades at a relatively low valuation, with a 5-year average P/E of 17x.
- The industry has seen a growing pipeline of new work related to energy transition over the past five years.
- This trend continues to strengthen Worley's earnings growth outlook.
L1 Capital
30 Sept 2023
$17.50
- Worley shares rallied (+10%) after strong FY23 results.
- Positive qualitative outlook for FY24.
- Multi-year revenue growth driven by recovery in conventional energy capex.
- Increased spending in energy transition projects.
- Execution of major project wins over the last 12 months.
- Pivotal shift towards green energy opportunities.
- Market perception evolving from a legacy oil and gas contractor to a diversified engineering company.
- Critical role in enabling the energy transition.
L1 Capital
31 July 2023
$17.36
- Worley shares have rallied over the quarter by +10% due to positive sentiment towards energy capital expenditure.
- Major project wins have contributed to the overall positive outlook.
- L1 Capital continues to hold its position in Worley, recognizing it as one of the few global engineering consultancy firms well-positioned for the energy transition.
- Worley is poised to benefit from significant investments in hydrogen, carbon capture, and renewable energy.
- The firm is viewed as being in the early innings of the pivot towards green energy opportunities.
- Despite its critical role in enabling the energy transition, the market still sees Worley as a legacy oil and gas engineering contractor.
Cooper Investors
30 June 2023
$15.79
- Cooper Investors established a position in Worley (WOR) during the quarter.
- Investment trends in engineering and construction are expected to benefit from the shift to clean energy.
- The energy transition has gained momentum, influenced by net zero targets from governments and companies.
- Russia’s invasion of Ukraine has heightened the focus on energy security through decarbonisation.
- Returns in the sector are anticipated to improve over the next decade due to structural tailwinds.
- Worley pivoted early towards the energy transition, positioning itself favorably for clean energy investments.
- Global energy investment is projected to grow from US$2.4tn to US$5.1tn per annum by 2030.
- Policy settings, like the US Inflation Reduction Act, are enhancing investment in clean energy.
- This suggests energy investments may decouple from oil price fluctuations.
- Growth in the sector is increasingly structural compared to its historical cyclicality.
- Industry dynamics are improving with increased pricing power and higher margins from sustainability-related work.
- Worley is expected to benefit from operating leverage and has already reduced costs significantly since COVID.
- Guidance indicates FY24 EBITA margins of approximately 7.5%, with potential for double-digit margins.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
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