Ann: Qatar Shell Awards EPCM Contract for Pearl GTL, page-64

In this post I've tried to look at WOR through the eye's of someone with a long position.

You say you've looked at WOR through the eyes of someone with a long position, but the reality is that you haven't; what you've done is looked at WOR through what you think (or hope, more likely) are the eyes of someone with a long position.

Because those who are long WOR are not long because of the upcoming interim result, or even the full-year result, which is where you are looking. Everyone knows FY2017 will be bad, and accordingly, view it as a write-off year.

People that are long are positioned that way because of what the company might earn in 2018 and beyond.

Everyone knows this is a cyclical business: the price of the underlying commodity is cyclical and WOR's customers spend money in a cyclical fashion.


"Ask yrself... is 19x fair value considering the macro? Does current SP provide opportunity to exit WOR esp when no divs likely next week? Is WOR likely to surge again between HY and FY result?

The market is not that dumb an animal; it knows when things are booming, they are likely to ease off at some point, and that when they are in the doldrums - like they are now - the market knows they will improve at some point.

Which is why, at the peak of cycles, oil service industry stocks generally trade at lower multiples than they do at cycle troughs.

As for the impact of whether or not a dividend is declared, WOR already suspended its dividends 12 months ago. I am sure there is not an investor alive who today views WOR as a dividend play. So whether the dividend is zero, or 5c or 10c, I don't think it will make a jot of a difference. (For what its worth, given the state of the balance sheet, I do not expect a dividend to be declared at all for the current financial year.)


Just some food for thought. Who knows how mkt will react? i've been wrong this past several months. I'll leave it here and will post my reaction to hy result on Monday."

Sure, when the upcoming result is announced, it might "disappoint the Street" and some hot money might sell the stock off a few pennies, but be assured that those who are looking through the valley of cycle-low earnings, towards profit recovery on the other side, will resume buying the stock.

Because, what the longs will be looking at, is not FY2017's 19x P/E, but what FY2018's P/E multiple will be.

Now I don't know much about making accurate long-range forecasts, but what I am prepared to say for certain - absent the global economic sky falling on our collective heads - is that WOR's EPS for FY2018 will be a figure that is somewhat higher than 50c to 55cps (even if FY2018 Revenues show no improvement on on FY2017.)

If you want to avoid further losses on your long-standing short position, its the FY2018 number you need to get right, not FY2017's. Because of the forward-looking nature of the market, FY2017's financial result is largely academic.