We recently revisited Worley (ASX:WOR) in The Dynamic Investor. The Company recently outlined its medium- to long-term strategy aimed at delivering double-digit earnings growth through to FY30. Notwithstanding, WOR’s attractions as a long-term investment are being overshadowed by short-term earnings pressure as a result of the Middle East conflict and concerns about management credibility.

On balance, we assess whether current levels present value.

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. This includes planning, development, operations (maintenance, modifications) and ultimately project de-commissioning.

Key Fundamental Drivers

Strategy Targets Highlight Several Tailwinds

WOR’s aspiration to deliver double-digit earnings (‘EBITA’) growth on a CAGR basis over the FY26-FY30 period is underpinned by several tailwinds, including:

i. Continued strength in the core Energy, Chemicals and Resources (ECR) business, with WOR aiming to grow its share of the ECR market with greater focus on full project delivery.

ii. Growth opportunities in Complex Critical Infrastructure (CCI) markets. These include data centres, power, nuclear, water and ports. These opportunities currently represent a small proportion of group revenue but are expected to grow faster than traditional engineering capital expenditure markets.

iii. Increased demand for energy investment to regions such as Venezuela, West Africa, Argentina, offshore Brazil, and Guyana. Notably, there is increased customer interest for sustainability & alternate fuels given the higher cost of traditional energy.

iv. WOR has won new data centre customers in US, having secured an alliance with Nvidia and data centre construction company BECI. WOR sees an opportunity with data centre hyperscalers as these require more complex solutions re power supply, water and broader infrastructure.

Short-Term Outlook Clouded by Middle East Uncertainty

In late April, WOR moderated its underlying EBITA growth guidance for FY26 due to the Middle East conflict, which resulted in some projects being paused. The reduced guidance also reflected the likelihood of delay to contract awards.

At an Investor Day in mid-May, the Company reiterated guidance first issued in April 2026. However, in late June, the Company issued an update to the ASX stating that the “extended duration and ongoing impact of the Middle East conflict continues to cause disruption to the progress of existing projects”. WOR noted that while there have been no project cancellations, customers continue to delay the commencement and award of new projects.

That the latest update came only ~1 month after the Investor Day update in mid-May highlights the lack of visibility on the short-term earnings impact from the Middle East conflict.

Notwithstanding the recent challenges, the rebuild to regional energy infrastructure in the Middle East presents an opportunity for WOR. In particular, WOR is well positioned to win work involving the reconfiguration of regional trade infrastructure (i.e. pipelines, ports etc.) to avoid the Strait of Hormuz.

Margin Expansion Expected in FY27

We highlight two factors underpinning expectations for a recovery in EBITA margin over FY27/28:

i. WOR expects revenue should be able to grow beyond headcount growth. The total headcount has been in progressive decline over the last two year and is no longer a direct proxy for revenue. Further, staff utilisation (85% in 1H26) continues to track below the long-term target of 87%.

ii. The cost savings target has been upsized from $100m to $120m with potential for further savings. The benefits from the increased cost savings are expected to start to materially flow in FY27. The increased cost savings are required to offset the adverse impact from the ongoing mix shift into lower-margin procurement, construction and fabrication work.

The majority of the double-digit earnings target to FY30 is likely to be revenue driven, with the Company making reference at the Investor Day to margin durability rather than margin improvement. This statement likely reflects two factors: i) The uplift in margin (excluding procurement) in recent years and ii) The ongoing mix shift into Procurement, Construction and Fabrication which is lower-margin than Professional Services.

Fundamental View

Notwithstanding that valuation support remains attractive, market concerns about management credibility is likely to act as an overhang on the shares over the short-term. In particular:

i. Two earnings downgrades for FY26 in quick succession, with the second downgrade coming despite the Company reiterating guidance after the first.

ii. Prior investor concerns that management has been too optimistic about project timing and growth expectations. This concerns centers on large projects such as Venture Global’s CP2 LNG development and the broader backlog outlook. Worley management has repeated assertions that previous project delays were timing-related resulted in the delay for approval/completion of major projects. In turn, this has resulted in slower-than-expected growth in backlog.

To this end, a key factor in restoring investor confidence in management is evidence that deferred projects in the Middle East are resuming. While this may occur over the course of 1H27, the key swing factor is whether any peace deal lasts. The next 12-18 months will be critical in rebuilding trust in management and de-risking the medium-term outlook.

Consensus estimates are currently factoring in high-single-digit EBITA growth of FY26-30, which is below the Company’s targeted double-digit growth. The gap is attributed to: a) Uncertainty regarding the sustainability of cost-out initiatives, b) A lack of visibility around project deferrals linked to Middle East disruptions and c) Lingering concerns around management trust.

Charting View

Since the end of 2023, WOR has been respecting a downwards sloping resistance line. In the short-term it is gravitating back towards the March low near $10. Making a low above $10 would be the a positive sign. For the long-term chart to look attractive, we would need to see WOR break above the downwards sloping trendline near $13.50. A break under the March low would be a negative.

 

Michael Gable is managing director of Fairmont Equities.

 

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