We recently researched Worley (ASX:WOR) in The Dynamic Investor. Having successfully recommended the shares earlier this year, we assess whether the recent pullback still presents an entry opportunity.

About Worley

Worley is a provider of global engineering, advisory and project management services to the oil, gas, mining, power and infrastructure sectors. Key customers include most of the world’s largest oil and gas, mining, chemical and petrochemical companies. The Company provides engineering services across the entire project lifecycle, i.e. planning, development and ultimately project de-commissioning.

Key Fundamental Drivers

Revenue Trends Continue to Improve

The Company reported a +2% improvement in backlog, over the three months to 31 March 2025. This was a pleasing outcome, given than market volatility did not resulted in meaningful cancellations. The improvement also and reinforces the quality of WOR’s customer base, which remains focused on long-term investment decisions

The work pipeline remains strong. Outside of Venture Global CP2, WOR is currently undertaking a number of large projects (inc. Ma’aden’s Phosphate 3 in Saudi Arabia & Oxy’s Direct Air Capture program). The Company also sees further opportunities within the LNG market, tracking 6-7 additional projects in US/Canada & Alaska.

Risks from Macro Conditions Lowering

WOR is not seeing a material pullback in customer CAPEX or project deferrals/cancellations in the calendar year to date. Its key customers comprise some of the largest global Integrated Energy Companies (IECs) and National Oil Companies (NOCs). The IECs & NOCs have multi-decade investment time horizons with energy investment supported by macro tailwinds. These include increasing energy demand, decarbonisation of existing energy assets and shift to renewable energy (net zero commitments). There has also been capital discipline across the sector in recent years.

Further, results from major global oil & gas companies in early May (BP, Shell, Exxon, etc) saw no material changes to CAPEX budgets for the year ahead, with this cohort taking a through-the-cycle view and with an already prudent approach to CAPEX.

In relation to the potential impact from global tariff risk, this increases uncertainty more broadly regarding project decision making. This may result in delays to both the ramp-up of existing work and the pipeline of new work. While the duration of any potential impact remains unclear, it is worth noting that WOR has limited direct tariff impact.

Positive Margin Outlook

Margin continues to be supported by: i) Improved mix and ii) Increased pricing power as a result of the Company being more selective in bidding and an increasing portion of more complex projects. In particular, WOR has noted improvements in backlog margin, reflecting more selective bidding and relatively tight supply/demand for engineering services.

Over the medium term, there is upside potential to consensus margin forecasts from several avenues. These include improved cost-out and productivity from AI/automation, Technology Solutions, digital solutions and consulting services growth. WOR is also looking to change pricing model to capture share of value created (as opposed to person hours) and has successfully implemented value-sharing with its GID model based in India.

Capital Management Preferred Over Acquisitions

Gearing has remained below the target range in recent periods. As at 31 December 2024, gearing was 1.5x and below the target range of 2.0-2.5x. WOR’s balance sheet has allowed the Company to fund its investments through free cash flow and has also provided scope for bolt-on acquisitions in key growth areas.

To this end, a share buyback is considered a good option to drive EPS accretion for shareholders in absence of large bolt-on acquisitions. Following a period of strong cash generation in 1H25, WOR announced a $500m share buyback (the first in WOR’s listed history), which commenced in mid-March 2025.

Fundamental View

WOR shares are currently trading on a 1-year forward P/E multiple of ~12.5x, which is at a significant discount to the 2-year average and 5-year average multiples of 18x and 16x, respectively. WOR’s current 1-year forward P/E multiple is also undemanding in the context of an EPS growth profile of +17% over FY25-27 on a CAGR basis.

Aside from attractive valuation metrics, there are several key catalysts for the shares in the short term. Company commentary that macro conditions remain broadly supportive; revenue trends are improving and the work pipeline is increasing. In addition, further progress on the CP2 Project supports a material uplift in backlog, as well as an acceleration in EBITA growth in FY26.

Charting View

When we last looked at WOR on 6 May in The Dynamic Investor, we noted that it was a “higher risk” buy as it was not making higher highs and higher lows yet. We can now see that since the April low, WOR has been able to make some higher highs and higher lows. WOR is therefore a buy here and initial stops can be considered just under $12.73.

 

Michael Gable is managing director of Fairmont Equities.

 

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