WorleyParsons (WOR) Share Trading Recommendation

Submitted by Craig Strzelecki on 9 February, 2007 - 22:19

WorleyParsons (WOR) have a retained Hold share trading recommendation and an increased price target of $25.83 (from $22.01) from analyst Citigroup Investment Research (CIR). The analyst values WOR on an average of its peer group and DCF. WOR offers significant upside on the new TP but is likely to open higher when it resumes next Wednesday. WOR has announced the acquisition of the Colt (Engineering) group of companies based in Canada for A$1.1bn. This is a very positive acquisition for WOR, giving it a quality operating base in the high-growth Canadian oil sands market with a significant immediate EPS uplift. Colt is one of the leading oil sands engineering services firms. Development capex from identified projects in the region is expected to exceed C$120bn over the next 10 years. Colt has established relationships with the key operators and appears to have good visibility on workflow given the high-cost, multiyear nature of oil sands projects. While the acquisition multiple of 9.7x CY2006 EBITDA is not cheap the transaction is highly EPS accretive, as the multiple is a significant discount to WOR’s valuation and the deal will be partly funded by debt. CIR have increased their EPS forecasts by 7% in FY07E, 16% in FY08E and 15% in FY09E incorporating the acquisition and lower tax rate assumptions. WOR also released its 1H07A result with a reported NPAT of $94.5m, up 53% on the pcp. This was above its guidance range given last week and above their upgraded forecast. The difference from forecasts was in a low tax rate. CIR have reduced the tax rate forecasts. Their operational assumptions (excluding Colt) remain unchanged. Meanwhile, WOR have a retained Buy 2 share trading recommendation from analyst UBS and a target of $30.20 which approximates their midpoint of their valuation range.

WorleyParsons Limited is listed on the Australian Stock Exchange (ASX) under stock code WOR. You can view their investor website here. WOR was listed on the ASX on 28 November, 2002. WorleyParsons is a leading provider of professional services to the energy, resources and complex processes industries. John Grill is the CEO of Worley Parsons and Ron McNeilly is the Chairman. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade WOR. Check your charts and good luck with your share trading!

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