WorleyParsons (WOR) Update

WorleyParsons (WOR) has an Outperform recommendation and a $32.57 share price target from Australian shares analyst Macquarie Research Equities. The company is expected to report FY07 results on 27th August. The analysts believe that continuing strong demand from the oil and gas industry combined with the investment boom taking place in the minerals industry makes this company extremely attractive in the current environment, and they expect a strong set of results on 27th August. Earnings growth set to continue: the analysts expect FY07 reported NPAT of $212.5m, up 52.8% on pcp of $139.1m. Earnings growth is expected to be driven by: 1) strong industry conditions in the oil and gas, power and the alumina industries; 2) upward pressure on engineering rates; and 3) increased staff numbers. Lazy balance sheet = more acquisitions: They estimate net debt/equity will only rise to 34.6% by the end of FY07 following the Colt acquisition and capital raising. FY08 EBITA interest cover looks strong at 14.6x. WorleyParsons announced four acquisitions in FY06 and four so far in FY07. Worley will continue to make acquisitions to fill geographic and skills gaps given its strong balance sheet. Big picture still in place: The analysts' key theme with Worley is that demand from the oil and gas industry is strong given high oil prices and the fact that the minerals industry is undergoing an investment boom benefiting WOR's minerals and metals business. The power sector outlook is also strong driven by both energy demands and environmental regulations. Environmental engineering will be a big new growth area: The environment remains a large opportunity for WorleyParsons with the company having the skills base to supply most sustainable and emissions-related technologies. This means engineering work to modify facilities, reduce energy consumption, reduce emissions etc. Worley is well placed to benefit from these emerging trends across all of its businesses. Worley also has a large nuclear power skill base if Australia changes policy. Catalyst: Excellent potential for further upgrades given strong core markets and lazy balance sheet combined with delivery of Parsons synergies and opportunities. The analysts' price target is based on Worley trading at a 10% premium to its international peer group. Worley is a quality business which generates consistent profit growth and free cashflow. While not cheap in the short term, MER see upside earnings risk given its strong core markets and a lazy balance sheet.

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!