Disclosure: I hold several short positions in WOR starting in July and increasing substantially during the past 7 weeks. I also held short positions in WOR during 2015 during which the SP fell from $10 to below $5.
AS HC threads show i remain bearish re WOR's prospects and can't see any sign of a turnaround. As prev threads have stated the macro for engineering and esp upstream design/consulting engineering is weak and capex continues to fall Oz and around the world. Some brokers/analysts estimate delays/cancellations in projects in hydrocarbon sector as high as one Trillion in total.
WOR emphasis has been twofold.
a) cut costs to the bone (very successful)
b) maintain revenue esp in sectors where WOR has high expertise.
Cutting costs increases margin hence bottom line but does it compensate enough for the large fall in work? So far it hasn't and unless several new projects are announced soon work in fy17 will be below the already poor level seen in fy16.
I'm sticking with fy17 EPS of 50-55c with 1H esp weak. Perhaps engineering capex will improve in fy18 but i can't see that far ahead. Current SP of around $10 is triple that of 12 months ago so clearly Mr Mkt is much more optimistic than me.
The charts below relate to expenditure in Oz but a similar story in many other parts of world. The drop from 192 Billion to a forecast of about 50 Billion speaks for itself.
Rebounding commodities prices have done nothing to boost the prospects of new Australian mining and energy projects, with the federal government forecaster slashing expectations for 2020 project investment by half as resource companies become increasingly averse to spending.
The Department of Industry, Innovation and Science will today release reports from its chief economist showing big drops in expected development spending, despite many pundits declaring the worst of the commodities bust is over.
While the end of the investment boom has been a long time coming and falling investment this year is no surprise, chief economist Mark Cully has slashed medium-term expectations, releasing forecasts that in 2020 only about $25 billion worth of major projects are likely to be under way.
This is down from expectations of just over $50bn in the previous projects report, and compares to nearly $200bn worth of projects under way last year, as projects approved during the boom neared completion.
“Producers are diverting their focus from developing new projects to cutting costs and ensuring the commercial viability of existing assets,” the chief economist’s office said in its annual Resource and Energy Major Projects report.
“Final investment decisions have been delayed until 2017 or later, with producers considering factors such as the price cycle, access to infrastructure, business conditions and Australian cost competitiveness.”
The spending retreat among big miners and oil and gas players has already been well documented.
But the government’s projections in today’s release show that 2016’s 180 per cent price gains in coking coal and 80 per cent gains in iron ore and thermal coal have drawn nothing but a sober response from the industry so far.
“Investment decisions are taken with a long-term view of market conditions, and short-term price lifts are unlikely to have a significant effect on exploration activity and the progression of projects along the pipeline,” the report says.
The report is being released today with the department’s December quarter resources and energy report, which predicts that surging coal and iron ore prices will deliver the nation a record $204bn of mineral and energy exports this year.
But it predicts prices will slide this year as new global supply comes on and Chinese demand slows.
Three years of low oil and mineral prices have left resources companies cash-strapped and balance sheet-conscious, meaning there are few big projects in the pipeline.
The biggest project to be knocked on the head recently was the Woodside Petroleum-operated Browse LNG project, the nation’s last potential mega project in a string of $200bn of LNG development sanctioned in the past 10 years.
Woodside and its partners, including Shell and BP, in March formally rejected plans to develop the offshore gasfields using floating LNG processing vessels.
However, there is still the potential for more investment after 2020.
“The long-term prospects and opportunities for further investment in Australia’s resources and energy sector remain positive,” the report says.
“Australia has many high quality mineral and petroleum deposits that can be developed when the price cycle rebounds.”
The resource industry’s retreat on spending has been across the board in the face of lower prices and an uncertain outlook, even at companies with strong balance sheets such as Rio Tinto, BHP Billiton, Woodside and Shell.
The resources and energy quarterly report showed capital expenditure in the September quarter hit a six-year low of $9.7bn, down 35 per cent from a year earlier. Mining employment numbers hit a five-year low of 216,000 at the end of August after peaking near 300,000 in 2011.
“Employment is likely to decline further over the outlook period as major projects move into the less labour-intensive production phase of the mining boom,” the report says.
Mineral exploration spending, which has been falling at a rate of more than 10 per cent a year in mining since 2012, continues to wane, though the decline is slowing.
It hit $380m in the September quarter.
This was down 4 per cent on a year earlier but slightly up on the previous quarter.
Petroleum exploration expenditure fell 39 per cent to $355m.
The decline in petroleum spending is unlikely to end soon after BP last month abandoned the nation’s most anticipated oil exploration program in more than a decade — drilling in the Great Australian Bight. http://www.theaustralian.com.au/bus...d/news-story/db61d79f856434c193980c490b6f5363
WOR Price at posting:
$9.62 Sentiment: Sell Disclosure: Not Held
(20min delay)
