Shareholders in leading engineering services firm Worleyparsons Limited (ASX: WOR) have watched on today as their shares in the provider to the oil, gas, resources and infrastructure sectors tanked around 13.5% by mid-afternoon and touched an intra-day low of $9.56 after the release of the company's interim results.
What happened?
Surprisingly, both with regards to the sell-off today and considering the headwinds the sectors Worleyparsons' serves have faced, the group actually delivered an increase in underlying net profit after tax (NPAT) for the half year ending December 2014.
Here are the key figures:
- Aggregated revenue fell 4.7% to $3.6 billion
- Underlying NPAT increased 3.6% to $104.3 million, equating to a profit margin of 2.9%
- Underlying earnings per share (EPS) increased 3.4% to 42.2 cents per share (cps)
- The interim dividend was maintained at 34 cps, in line with the prior corresponding period
- Net debt (excluding $812 million in bonding) stood at $825 million
Now what?
The primary explanation for the market's reaction to Worleyparsons' profit result is investors' expectations about the future. For example, in the half the group benefitted from an increase in profit contribution from the Hydrocarbons sector, which offset declines in both the MM&C (Minerals, Metals and Chemicals) and Infrastructure sectors.
The problem now would appear to be that the Hydrocarbons sector – which was effectively the saviour of the group's overall result for the six months – is now faced with a record low oil price which is creating significant headwinds due to customers reconsidering investment plans in the near term. This situation has led to a muted outlook by management for all operating divisions.
Forecasting the full year result is difficult and Thomson Consensus Estimates for EPS of 110.5 cps look a stretch. Annualising the half year result implies that Worleyparsons is trading on a price-to-earnings ratio of 11.5x, which could be appealing if one believes the business is nearing a cyclical low.
