Clime's formulae clearly doesn't differentiate enough across stks but the multiples are massive even allowing for the improved macro. I waited to see if Morningstar changed their IV post recent update but as of yesterday it remains the same i.e. post 1Hfy18 in late Feb.
Morningstar IV (fair value) remains at $6.30. Their eps for fy18 and 19 is not dissimilar to mine but my IV is $13 which also happens to be the CR price.
WorleyParsons Limited WOR
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Research Publication Date: 22 Feb 2018 | 6:15PM | No-Moat Worley's 1H18 Profit a Bit Shy of our Target but Trend Supports Retention of our Thesis
Morningstar Recommendation: Sell
Morningstar Analyst Ratings
|
Column 1 |
Column 2 |
Column 3 |
Column 4 |
| 1 |
Fairvalue |
UncertaintyRating |
MoatRating |
StewardshipRating |
| 2 |
$6.30 |
Very High |
None |
Standard |
No-Moat Worley's 1H18 Profit a Bit Shy of our Target but Trend Supports Retention of our Thesis
Mark Taylor
Morningstar Analyst
We make no change to our AUD 6.30 fair value estimate for no-moat WorleyParsons. The company's 104% increase in underlying first-half fiscal 2018 NPAT to AUD 78 million was below our AUD 89 million expectations. But the trend is regardless favourable and our long-term thesis for improving earnings, as energy reinvestment kick-starts, is intact. Underlying NPAT excludes AUD 77 million in post-tax restructuring, acquisition, onerous lease and deferred tax charges which crimp the statutory result to just AUD 1.4 million.
Worley says its backlog has increased by 17.6% to AUD 6.0 billion, driven by brownfield hydrocarbon projects, albeit substantially from the UK Integrated Solutions, or UK IS, acquisition. However, the company points to this first-half 2018 acquisition exceeding targets, and there are some new contracts since purchase. Trends continue to indicate increases in global hydrocarbons capital expenditure, and mining customers returning to spending, just not at the face-value rate of the backlog increase.
The real first-half 2018 surprise was the return of a dividend, the first in two years. An unfranked AUD 10 cent payment reflects only a modest 34% payout of underlying earnings for an annualised 1.3% yield at the current AUD 15.50 share price. However, it's a start and demonstrates management confidence in the turnaround story. We hadn't allowed for dividend reinstatement until fiscal 2020, but now assume ongoing payment at a ratio of 60% of underlying earnings. At the current price, that would equate to a helpful yield of 3% by fiscal 2021, though with limited franking given less than 20% of revenue originates from Australia. We expect the dividend should be readily supportable, projecting net operating cash flows in excess of AUD 500 million from fiscal 2019.
Earnings
Morningstar Analyst numbers at the time of publication
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Column 1 |
| 1 |
|
Column 1NPAT ($m)EPS (c)EPS Change (%)Div Payout Ratio %DPS (c)Franking (%)Grossed-Up DPS (c)Grossed-Up Yield %Dividend Yield %PE Ratio (x)Avg. Price/Price ($) |
|
[/table]
|
|
Column 1 |
| 1 |
|
Column 106/16(a)153.160.6-25.00.00.00.00.00.00.010.46.30 |
|
[/table]
|
|
Column 1 |
| 1 |
06/17(a)123.248.6-19.80.00.00.00.00.00.019.59.50 |
|
|
Column 1 |
| 1 |
06/18(e)171.763.230.147.830.211.231.62.12.024.315.37 |
|
|
Column 1 |
| 1 |
06/19(e)192.969.59.960.041.716.744.72.92.722.115.37 |
[/table]
Source: Morningstar analysts[/table]
Investment Perspective (Last Updated: 11-Oct-2017)
WorleyParsons is an established provider of engineering and other professional services to the oil, gas, mining, power, and infrastructure sectors. It primarily delivers projects, including engineering, procurement, and construction facets. Hydrocarbons is the largest business, contributing 70%-75% of revenue. Minerals, metals, and chemicals contribute 15%-20% of revenue, and infrastructure 10%-15%. WorleyParsons has a global presence with about 23,200 staff in 42 countries. Extensive professional skills, solid delivery capabilities, global scale, and strong customer relationships saw Worley's earnings balloon during the China-driven resources boom. Returns on invested capital were higher during the boom, but numerous acquisitions have inflated the invested capital base. With oil and gas prices low, petroleum companies are cutting costs heavily. In the longer term, field depletion will drive investment recovery.
Dividends
Clime have fy18 IV of $9.87 and fy19 at $10.33.
Market Stats
Last updated: 16 May 2018 - 7:29pm
|
Market Price |
A$17.55 |
| 1 |
52 Week Low |
A$10.37 |
| 2 |
52 Week High |
A$17.66 |
| 3 |
P/E Ratio |
123.12 |
Value
|
Historic Value (Latest Results) |
A$10.74 (-38.8%) |
| 1 |
Future Value (Forecast FY) |
A$9.87 (-43.8%) |
| 2 |
Future Value Y2 |
A$10.33 (-41.1%) |
| 3 |
Required Return |
11.6% |
| 4 |
Forecast Return on Equity |
14.0% |
Dividend
|
Current Dividend Yield |
0.0% |
| 1 |
Forecast Dividend Yield |
1.4% |
| 2 |
Forecast Dividend Franking |
25.0% |
5 Year Growth Rate
|
Dividend Per Share |
-100.0% |
| 1 |
Earnings Per Share |
-38.6% |
| 2 |
Equity Per Share |
-2.3% |
SP now $17.84. I shorted a whole lot more at $17.75. Using $17.75 my calcs show:
Interesting to see (in update) that WOR rev for 4Q fy18 is down 20% from the 3Q in fy18. Plus the number of new contracts being announced remains sparse. fy19 rev will be higher but unless some massive contracts are announced soonish, its unlikely to be substantially (eg 25-35%) higher that fy18... and nothing on a par with the increase in SP.
Oil continues to rise. I expect revenue will grow in fy19 but with similar margins as current. SP very strong as POO rises but SP is way above IV imo. If i was long I'd consider taking profits.... but concede the chart is bullish to say the least.
Aggregated Rev: FY18 4895m
Underlying EBIT: FY18 286m
Underlying NPAT: FY18 164m
Underlying EPS: FY18 61c
Dividend: FY18 25c unfr.
The statutory NPAT will be less due to change in tax regime in USA and along with methodology WOR use to calc underlying NPAT. Plus some bad debt seems to have been repaid reducing overall debt from 771m to my estimate of 720m.
Using a SP of $17.75:
EV/ebit = 4668+720 = 5388/286 = 18.8x which is very high.
(20min delay)
