MENU

Is the WorleyParsons lawsuit a great investment opportunity?

Engineering group WorleyParsons (ASX: WOR) has been hit with a lawsuit by Mark Elliot, a former partner of law firm Minter Ellison, who has recently launched similar actions against leading ASX companies.

The lawsuit alleges that WorleyParsons did not comply with its continuous disclosure obligations prior to the release of its shock profit warning on 20 November 2013, which resulted in its shares tumbling 26% last month.

WorleyParsons is a provider of professional services to the energy, resource and complex process industries. In particular it provides engineering design and project delivery services globally to companies involved in hydrocarbons, minerals, metals and chemicals, infrastructure and environment and power.

Mr Elliot owns a private company called Melbourne City investments and has launched similar actions against both Leighton Holdings (ASX: LEI) and Treasury Wine Estates (ASX: TWE).

WorleyParsons joined a long list of mining services companies questioned over continuous disclosure following negative profit guidance revisions. These included Forge Group’s (ASX: FGE) warning in late November that sent its shares from $4.00 to 50 cents and Ausenco’s (ASX: AAX) double warnings in July (shares fell 31%) and again in October producing a fall of 60%.

As a result of the announcement, WorleyParsons shares only moved 1.25% lower, validating denials by the company of a proper basis for the alleged claim.

The Australian Workforce and Productivity Agency (AWPA) recently released its 2013 resources skills study. It revealed that the resources industry construction workforce is set to collapse over the next four years, shedding more than 78,000 jobs (a 91% decrease). However, the study revealed a partial offset via the oil and gas sector contributing 56% of the 40,000 jobs in the production and maintenance segments of the mining services sector.

WorleyParsons has that expertise in unconventional oil and gas and is in a great position to prosper from the expected strong growth in activity in this sector. Additionally, it has a strong balance sheet, which makes possible further accretive acquisitions to help supplement organic growth.

Purchasing WorleyParsons is an excellent way to gain exposure to continued growth in global hydrocarbons capital expenditure, which accounts for approximately 70% of its revenue. It has broad international diversification, with over 80% of FY 2013 revenue generated outside Australia. No other local mining services company has this material offset against the stagnant Australian mining services sector.

Foolish takeaway

The lawsuit against WorleyParsons may limit the upside to the share price in the short term.

For medium- to long-term investors this may provide an opportunistic time to buy. It is the number one stock in the Australian mining services sector due to its global presence in a rapidly expanding market.

Our top dividend stock idea -- full report FREE!

Discover The Motley Fool's favorite income idea for 2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2014."

Motley Fool contributor Mark Woodruff does not own shares in any of the companies mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.