Investment Matters

Worley (formerly WorleyParsons)

Worley (formerly WorleyParsons) is a global professional services company that has expertise in the hydrocarbon (e.g. oil and gas), minerals, metals, chemical and infrastructure sectors. 

The company provides consulting/advisory, engineering, project management, construction and procurement services to companies around the globe, with operations in over 50 countries employing over 60,000 people.

Investment history

Our investment in Worley occurred as part of a capital raising it conducted in October of last year (2018).  The raising was used to fund the acquisition of the ECR (Energy, Chemical and Resources) division of Jacobs Engineering, a US-listed global engineering and professional services company.

The acquisition, which was completed last week, was conducted at an attractive price (11.5 x EBITDA pre-synergies, 8.5x post cost synergies) and is substantial, almost doubling the size of Worley.

In a strategic sense, the acquisition has allowed Worley to improve its geographic diversification, broaden its capabilities (e.g. increased capability in downstream hydrocarbons and chemicals) and provide an end-to-end service across the value chain (e.g. in hydrocarbons and minerals/metals).

Furthermore, increased exposure to chemicals (to approximately 25% of pro forma FY-18 revenue) provides non-cyclical growth in demand (i.e. not sensitive to business or commodity cycles) for its services.

By participating in the capital raising, we were able to acquire shares in the company at an 8% discount to the theoretical ex-rights price – a price we assessed as attractive.

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(Source: Worley)

Investment thesis

We consider Worley to be a company with quality management and strong execution ability.  We are also attracted to its low exposure to lump-sum style contracts, which leaves it with a favourable operational risk profile.

It has a strong reputation, comprehensive service offering and established relationships with customers globally.  This leaves it positioned as a leading provider in its field.

We assess that its future growth will be underpinned by increasing activity in the energy, minerals and metals sectors (approximately 60% of pro-forma FY-18 revenue).

Our research indicates there has been meaningful under-investment in these sectors since 2014 (for more on this please click here).  A need to replace depleted resources (through exploration and development) and complete deferred maintenance and servicing are expected to provide significant tailwinds for the company. 

We are beginning to see this now:

  • The value of project final investment decisions (FIDs) is expected to dramatically rise from $56bn in 2017 to $147bn in 2019 (source: Goldman Sachs Top Projects 2018).
  • As at the end of December 2018, WorleyParsons (ex-Jacob’s ECR) had a 36-month contract backlog valued at $6.6bn, up from $4.7bn at Dec 2016 (source: Worley).
  • In 2019, Worley (excluding-Jacob’s ECR) announced the highest number of contract awards in ten years (within the first half of a financial year) (source: Worley).

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In their most recent results, both Worley and Jacobs’ ECR are showing positive momentum.  Based on our assessment, their results indicate the combined entity is on track to substantially outperform Worley’s pre-merger forecasts.

Conclusion

Worley is a world leading professional services firm.  We are attracted to its execution ability, broad capabilities, favourable operational risk profile and global reputation.

Given these attributes, it is well positioned to benefit from an increasing need for investment in the energy, resources, infrastructure and chemicals sectors globally.

We see that the company will continue to be a valuable source of returns for clients over the coming years.

- Paul Grace