Investment Matters

Company News

Australian Equities

Worley (positive impact) held their investor day this week which we attended (virtually).

The market reacted favourably to the update, with shares in the company ending the week 14% higher.

The company’s focus was an update on its strategic transformation, as it evolves to become a leader in the sustainability domain.

The company highlighted four broad areas or pathways within which it looking to focus:

  • Decarbonisation (Addressable market of US$45-220 billion per annum)
    • Examples:
      • Low carbon fuels and circular economy
      • Offshore wind
      • Energy transitional materials
      • Low-carbon hydrogen
      • Carbon capture and storage

 Decarbonisation

 

  • Asset sustainability (Addressable market US $450-900 billion per annum)
    • Examples:
      • Decommissioning and restoration of existing energy, chemical and resource assets

 Asset sustainability

  • Resource stewardship (Addressable market of $15-30 billion per annum)
    • Examples:
      • Water stewardship
      • Plastics recovery
      • Sulphur recovery

 Resource Stewardship

  • Environment and society (Addressable market of $22.5-33.75 billion per annum)
    • Examples:
      • Environmental management and consulting

Environment Society

We agree that the scale of the opportunity in from of them is huge.

While Worley currently derives approximately 30% of its revenue from sustainability-related projects, there is significant potential for this to grow.

It has recently won a number of projects in the sustainability domains: including more than 35 offshore wind projects and more than 40 hydrogen projects.

Some examples of these projects are shown below:

Worley decarb

Source: Worley

Worley resource stewardship

Source: Worley

Worley env soc

Source: Worley

Shifting from the future to the present: the headline metrics that the market keeps track of were all healthy.

Headcount – that is, the number of people employed (which strongly correlates to revenue) has remained stable and the company’s backlog of work has marginally increased (+4% currency adjusted).

Furthermore, the company’s factored sales pipeline (potential projects taking into account the likelihood of project awards) has continued to grow across all divisions of the business.

Overall, Worley’s transition to the sustainability domain provides several benefits to the company. It will likely lead to revenue that is less variable to economic conditions (relative to oil and gas-related projects) and re-invigorates the company’s potential for earnings growth in the future.

With the awarding of more projects in the sustainability domain we feel this will be better reflected in its share price.

***

MMA Offshore (positive impact) released a lengthy operational update, which both we and the market were exceedingly positive about (shares ended the week 20% higher).

The share price move was in reaction to two key developments.

The first is the award of two large vessel contracts, an offshore wind support contract in Taiwan and further survey work for the department of defence,

The awarded contracts increase MMA’s contracted revenue by A$54million with options to extend constituting a further A$70million.

Coincidently, the support contract in Taiwan is part of a joint venture enabling Worley to provide operational and maintenance services to offshore wind assets in Taiwan.

MMA offshore

Source: Worley

It has been a busy 6 months for MMA, with the announcement of contracts valued at $87.5million or approximately 33% of its annualised revenue. In short: they are winning more work which will improve utilisation of their vessels. Give their cost structure (high fixed costs), a lot of this will fall through to the bottom line.

The second development was the sale of three underutilised anchor handling tug (AHTS) vessels. These vessels are experiencing a low amount of demand in the current market where a majority of projects are in deeper water.

Pleasingly, the vessels were sold at a good price and will be used to pay down debt under the company’s recent debt restructure.

This has helped reinforce the value of the vessels the company is carrying on its balance sheet.

***

The above market commentary represents the views and opinions of First Samuel Pty Ltd. Such market commentary contains information of a general nature only. Such market commentary is not intended to provide a sufficient basis on which to make any investment decision and should not be taken as such. It has not taken into consideration your objectives, needs or financial situation. Before making decisions in relation to any financial product, you should always obtain and read any relevant Product Disclosure Statement or information statement and seek personal financial advice.