WorleyParsons Limited shoots up 4.07%: Should you buy?

What: Engineering and construction company WorleyParsons Limited (ASX: WOR) capped off a difficult year, as its share price over the past 12 months is down 18.6%, compared to the 9.9% gain of the S&P/ASX 200 Index (ASX: XJO) (Index: ^XJO).

The mining pullback has taken its toll, but when it announced a 23% fall in full-year statutory NPAT, the market happily pushed the stock up 4.07%, closing at $17.88.

So What: FY 2014 full year results showed all its business divisions; hydrocarbons, minerals metals & chemicals and infrastructure were down in earnings before interest and tax (EBIT). Investors may have hoped that work in energy sector related contracts would have more of an impact in offsetting the reduction in mining related work. Unfortunately, that wasn’t the case this time. Aggregated revenue for the group was 3% down to $7.364 billion.

However, the company made great strides in cutting costs and scaling back expenses that raised operating cash flow 24% to $550 million. That increase brought the company’s gearing ratio down to 19.5%. About 1,200 jobs were cut in the second half through the business reorganisation, bringing total staff numbers down 4,200 to 35,600 for the full year. These are the kinds of steps investors will want to see – a leaner, financially strong business that will be ready when the industry cycle turns up again.

Here are some of the highlights from the report.

> Underlying net profit at $282.9 million, down from $344.2 million in FY 2013

> Basic earnings per share (EPS) at 101 cents

> Final dividend of 51 cents per share declared, giving it a total dividend of 85 cents per share

Now what: The worst of the mining pullback may be behind us as the industry returns to more normal levels. Still, weakness in iron ore and coal prices may keep a lid on new work contracts. The company expects a recovery in global metals and minerals capital expenditure in the medium term.

For investors looking at this industry, a contrarian view may see opportunities for long-term investments when the industry is unloved. The stock has a 19 price to earnings ratio and a 4.5% yield partially franked. However, it could be some time before the share price recovers to previous highs.

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Motley Fool contributor Darryl Date-Shappard has no financial interest in any company mentioned. 

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